• The U.S. goods and services trade deficit rose 4.9% in September from August.
• Imports rose more than exports on the month, pushing the trade deficit wider.
• The services surplus narrowed in September, while the goods deficit increased.
• Tighter monetary policy globally will weigh on trade flows in 2024.

The U.S. economy added 150,000 jobs in October, according to a survey of employers from the Bureau of Labor Statistics. This is the weakest job growth since June, but with a big asterisk: there was a decline of 33,000 in employment in motor vehicle and parts manufacturing due to the UAW strike against the Big Three automakers. With the strike now settled employment in the industry should bounce back in November. Private-sector employment increased by 99,000 in October, with jobs gains of 51,000 in government. 

Job growth was revised lower in September, to 297,000 from 336,000, and job growth in August was also revised lower, to 165,000 from 227,000. The three-month moving average of growth in October was 204,000; after discounting the strike, underlying job growth over the past three months has averaged around 215,000. This is down from above 300,000 in early 2023, so job growth is slowing, although it remains somewhat above the long-term sustainable pace of around 125,000 per month given growth in the U.S. labor force. 

The unemployment rate increased to 3.9% after being at 3.8% in August and September. This is the highest the unemployment rate has been since January 2022. Employment fell by 348,000 in October in a survey of households, different from a survey of employers. The household survey is more volatile than the employer survey, and employment in the household survey had increased in each of the previous four months. 

The labor force—the number of adults either working or looking for work in the household survey—contracted by 201,000 in October. The labor force participation rate, the share of adults either working or looking for work, fell to 62.7% in October after holding at 62.8% in August and September. The labor force participation rate is up somewhat from early 2023 but remains lower than the 63+% rate before the pandemic; the post-pandemic labor market is structurally tighter than the pre-pandemic one.

Goods-producing employment fell by 11,000, pulled down by job losses of 35,000 in manufacturing, largely due to the UAW strike. Construction employment rose by a solid 23,000 in October, even with much higher interest rates over the past couple of years; construction employment is usually interest-rate sensitive. Private service-providing industries added a net 110,000 jobs in October, with most of the gains coming in education and health services (89,000). 

Average hourly earnings increased a modest 0.2% in October from September. The temporary loss of high-paying jobs in the auto industry likely contributed to weaker wage growth in October. Wage growth in both August and September was revised slightly higher, to 0.2% to 0.3% in both months. On a year-over-year basis average hourly earnings were up 4.1% in October. This is down from 4.2% in September before revisions and is the slowest pace since June 2021. Although some of the softening in October came from the auto strike, wage growth was well above 5% in most of 2022, so wage pressures are abating. Still, wage growth is running well ahead of the 3.5% pace consistent with the Federal Reserve’s 2% inflation objective. 

This morning’s job report was encouraging from an inflation perspective. Job growth is gradually easing, the unemployment rate is up from earlier in the year but remains very low, and wage growth is cooling. The Federal Open Market Committee will likely view this report as a sign of progress in its fight against elevated inflation. The October jobs report supports PNC’s forecast for no increase in the fed funds rate at the FOMC’s next meeting, on December 13, but there will be one more jobs report between now and then.