US employers pulled back on hiring in October, adding 150,000 jobs in face of higher borrowing rates

Wall Street steamrolled even higher Friday as it closed out its best week in nearly a year.

The S&P 500 climbed 40.56 points, or 0.9%, to 4,358.34 and rose every day of the week. The Dow Jones Industrial Average gained 222.24, or 0.7%, to 34,061.32, and the Nasdaq composite jumped 184.09, or 1.4%, to 13,478.28.

Stocks surged through the week on rising hopes the Federal Reserve is finally done with its market-crunching hikes to interest rates, meant to get inflation under control. A report on Friday underscored that pressure is easing on inflation after it showed employers hired fewer workers last month than economists expected.

It’s a stunning turnaround from just a week ago when Wall Street was reeling after the S&P 500 had fallen 10% below its high point for the year. That sent Wall Street’s main index into what investors call a “correction.”

Since then strong profit reports helped drive some stocks to towering gains. Generac, a maker of backup generators, soared nearly 28% for its best week since its stock began trading in 2010. At Expedia Group, another stronger-than-forecast report sent its stock nearly 22% higher for its best week since the market was surging out of the coronavirus crash in early 2020.

But it was interest rates, yields, and inflation that were at the center of all the wild movements for financial markets around the world.

Before this week, stocks had been struggling under the weight of rapidly rising Treasury yields. Those yields were in turn catching up to the Fed’s main interest rate, which is above 5.25% and at its highest level since 2001.

Higher rates and yields slow the economy, hurt prices for investments, and raise the risk of something breaking within the financial system, such as the three high-profile U.S. bank failures that rattled financial markets during the spring.

“It was really fear that the Fed was going to go too far,” said Katie Nixon, chief investment officer for Northern Trust Wealth Management.

The Fed put such pressure on the economy intentionally, hoping to starve inflation of its fuel. It wants the job market to cool, particularly pay raises going to workers. The Fed fears too-strong pay gains could create a vicious cycle that keeps inflation high.

Analysts said Friday’s jobs report offered encouraging signals for the Fed, with average hourly earnings rising less in October from September than expected, though it doesn’t mean the job is done.

Treasury yields in the bond market tumbled immediately after the jobs report, releasing more of the pressure that had built up on Wall Street. The yield on the 10-year Treasury eased to 4.52% from 4.67% late Thursday and from more than 5% last week when it hit its highest level since 2007.

Of course, that sharp fall in yields could also end up hurting investors in the long run. Fed Chair Jerome Powell said this week that the central bank may not need to hike rates anymore if the recent rise in yields stays “persistent.” Such high yields could slow the economy and push down inflation by themselves, without requiring the Fed to hike rates again.

A swift regression in Treasury yields could make the Fed more nervous and encourage it to consider raising rates again. The 10-year yield in just a week eliminated its rise from all of October.

Plus, a slowing job market raises pressure on economic growth, and worries still exist on Wall Street about a possible recession even though the economy is strong at the moment.

Still, a slowing U.S. job market is exactly what investors wanted to see because it could convince the Fed to halt its barrage of hikes to interest rates.

Traders are moving up expectations for when the first cut to interest rates by the Fed could happen, potentially by the summer, according to data from CME Group. Such cuts can act like steroids for financial markets.

For investors around the world, the “Fed matters more than other central banks,” and weak U.S. data is “the only game-changer for markets,” foreign-exchange strategists at Bank of America wrote in a BofA Global Research report.

A separate report on Friday said growth in U.S. services industries, such as finance and construction, was weaker last month than economists expected. The report from the Institute for Supply Management also suggested a slight easing in prices.

Excitement about a potentially easier Fed was more than enough to offset a fall for Apple, which is Wall Street’s most influential stock.

The most valuable U.S. stock fell 0.5% despite reporting stronger profit for the latest quarter than analysts expected. Analysts said investors were likely disappointed with Apple’s forecast for revenue for the last three months of 2023.

On the winning side of Wall Street was Cardinal Health. It rose 6.9% after a better-than-expected profit report

Stock indexes were mixed in Europe and higher across most of Asia.

The nation’s employers slowed their hiring in October, adding a modest but still decent 150,000 jobs, a sign that the labor market may be cooling but remains resilient despite high-interest rates that have made borrowing much costlier for companies and consumers.

Last month’s job growth, though down sharply from a robust 297,000 gain in September, was solid enough to suggest that many companies still want to hire and that the economy remains sturdy. And job growth would have been higher in October if not for the now-settled United Auto Workers’ strikes. The strikes ended this week with tentative settlements which against Detroit’s automakers granted significantly better pay and benefits to the union’s workers.

Friday’s jobs report from the government comes as the Federal Reserve is assessing incoming economic data to determine whether to leave its key interest rate unchanged, as it did this week or to raise it again in its drive to curb inflation. The lower job growth in October, along with a slowdown in pay gains last month, could help convince the Fed that inflation pressures will continue to cool and that further rate hikes may not be needed.

On Wall Street, traders appeared to signal their growing belief in that scenario. Bond yields fell and stock prices rose sharply after the jobs report was released, indicating optimism that the Fed will decide it won’t need to impose additional rate hikes.

The unemployment rate rose last month from 3.8% to 3.9%. And in another sign of a possible softening in the labor market, the Labor Department revised down its estimate of job growth in August and September by a combined 101,000.

The UAW strikes contributed to an overall loss of 35,000 factory positions in October. Several other sectors posted solid job gains last month, notably healthcare, which added 58,000, government agencies 51,000, and construction companies 23,000.

By contrast, the vast leisure and hospitality sector, which includes bars, restaurants, and hotels, reported only modest job growth. So did professional and business services, a category that includes such high-paying occupations as accounting, engineering, and architecture.

Wage pressures, which have been gradually slowing, eased further in October. Average hourly pay rose 0.2% from September and 4.1% from 12 months earlier. The year-over-year wage increase was the lowest since June 2021; the month-over-month rise was the smallest since February 2022.

The Fed has raised its benchmark interest rate 11 times since March 2022 to try to slow the economy and tame inflation, which hit a four-decade high last year but has slowed sharply since then. In September, consumer prices rose 3.7% from a year earlier, down drastically from a year-over-year peak of 9.1% in June 2022 but still well above the Fed’s 2% target level.

The U.S. job market has remained on firm footing despite those rate hikes and has helped fuel consumer spending, the primary driver of the economy. Employers have now added a healthy 204,000 jobs a month over the past three months. The combination of a solid economy and decelerating inflation has raised hopes that the Fed can nail a so-called soft landing — raising rates just enough to tame inflation without triggering a recession.

“This is still a good labor market,’’ said Nick Bunker, head of economic research at the Indeed Hiring Lab. “There’s no recession right now that you can see in the labor market data.’’ Bunker added that the October jobs numbers are “mostly consistent with the soft landing story.’’

For the Fed, one unwelcome note in Friday’s report is that the number of people in the labor force – those who either have a job or are looking for one — fell by 201,000 in October. It was the first such drop since April. Over the past year, more than 3 million people have entered the workforce, making it easier for companies to fill job openings. This has reduced pressure on employers to jack up pay and pass on their higher labor costs to their customers through higher prices. But the trend was broken last month.

Since matching a half-century low of 3.4% in April, the nation’s unemployment rate has more or less steadily edged up. The 3.9% rate in October was the highest level since January 2022. Still, historically, any jobless rate below 5% has been considered healthy.

“There’s a clear upward trajectory in the unemployment rate,″ Bunker said. ”It’s not at the point where it’s tripping any alarms or causing blinking, flashing red lights ... but it is something to monitor.″

The Fed’s policymakers are trying to calibrate their key rate to simultaneously cool inflation, support job growth, and ward off a recession. Despite long-standing predictions that the Fed’s ever-higher rates would trigger a recession, the U.S. economy grew at a 4.9% annual pace from July through September, the fastest quarterly expansion in more than two years.

And many companies are still looking to hire — and benefiting from the job market’s slowdown.

One of them is Saltbox, which offers co-working space and warehouse services for about small businesses in 10 states. Last year, the company felt compelled to raise pay from $15 to $20 for hourly workers who load merchandise on trucks and do maintenance work. Now, Tyler Scriven, the company’s founder and CEO, no longer sees a need to further raise pay.

“The pressure of raising wages,” Scriven said, “is easing. I would go further to say that at this point, I don’t really feel any pressure.’’

Likewise, Omaha Steaks had struggled since the start of the pandemic with a big problem: Holiday-season employees who didn’t show up for the first day of work, particularly at its distribution centers. At the time, no-show employees were a major headache for many companies. A year ago, Omaha Steaks, which has been shipping meats directly to consumers since 1952, had to hire 10% more holiday workers to account for the high quit rate.

This year, based on the past few weeks of holiday hiring, the show-up rates have improved markedly. It’s a sign that Nate Rempe, the company’s president and chief operating officer, said he thinks reflects a more normal job environment. Omaha Steaks, based in Omaha, Nebraska, no longer has to hire extra holiday workers to make up for the no-shows. In fact, it’s hiring modestly fewer people.

“They actually want to get to work, which we love to see because it’s good for business,” Rempe said.

 After a September surge, the labor market slowed down.

Employers added 150,000 jobs in October, with increases in health care, government, and social assistance and a decline in manufacturing due to the recent autoworkers strike. That's fewer than the 170,000 jobs that economists predicted. The unemployment rate, meanwhile, ticked up slightly to 3.9 percent, from 3.8 percent last month.

In September, employers added a surprising 336,000 jobs, almost doubling economists' predictions. That number was revised down to 297,000 in this report, and this October drop spells positive news for the Federal Reserve because lower labor demand reduces pressure on wages and thus inflation more broadly.

Still, there's more to be done, says Andrew Patterson, senior economist at Vanguard: "Anything over 100,000 is still adding more jobs than you need to account for the number of new entrants into the labor market."

And for employers, the competition for workers is still significant, despite some easing demand, says Justin Bloesch, assistant professor in the Cornell University Industrial and Labor Relations School: "Employers are going to have to be competitive with their offers to get quality workers."

Small businesses know this all too well: The percentage of owners with job openings remains "stuck in the historical stratosphere," according to the latest Small Business Jobs Report from the National Federation of Independent Business. And 24 percent of owners said they had no qualified applicants for their open positions.

They may start to experience some easing pressure on the wage growth front: Average hourly earnings ticked down to a 4.1 percent year-over-year increase, from 4.2 percent in September. This progress is noteworthy, as wages are going to be a key focus for the Federal Reserve as it fights to curb inflation, Patterson says.

That said, earlier this week, the Employment Cost Index (ECI) showed a slight acceleration from the year's second quarter, pointing to a "disappointingly gradual moderation in labor cost pressures" despite other signs of cooling in the labor market, says Gregory Daco, chief economist at EY-Parthenon.

The Job Openings and Labor Turnover Survey (JOLTS), meanwhile, showed little change in job openings in September, according to the report this week -- but job openings remain higher than the pre-pandemic rate, says Julia Pollak, chief economist at ZipRecruiter. Overall, the Federal Reserve wants to see more evidence of cooling, Patterson says: "They want to see continued progress in the JOLTS, in ECI, in the labor market numbers."

And if the most recent gross domestic product report is any indication, the path towards that goal is going to be bumpy at best: The report showed that GDP increased at an annualized 4.9 percent, the fastest rate since the fourth quarter of 2021 and a clear indication that economic growth is still running hot.

But there are signs that the Fed's measures are taking hold, with inflation easing slightly in September despite a still-hot services sector. The Fed chose to hold rates steady this week, as expected. But, Patterson says: "December is very much in play, in our perspective."

Jonathan wants me to guess how often retail workers see someone steal. It’s a challenge he likes to make friends, who always underestimate it. “It’s multiple times a day, maybe as often as once an hour. And that’s the stuff you can see, like the really blatant ones,” he says. “A lot of people picture a scared kid with a candy bar under their jacket, and you get that, but the majority of it is seasoned shoplifters going out with carts full of beer and liquor and hygiene products and electronics and laundry detergent, etc.”

He recently quit his job at a major retail pharmacy chain over the issue. (Jonathan is not his real name, and he spoke with me on the condition that he be granted anonymity and the company not publicly named. All of the workers I spoke to for this story were given pseudonyms and/or anonymity.) His frustration isn’t so much with the thieves, per se, but instead with how his former company has dealt with them.

Corporate ignored employees’ requests to put booze in locked cases because the liquor aisle is an area of the store that attracts some especially “sketchy” characters. It also blew them off when they warned of camera blind spots that shoplifters were aware of. “The company didn’t really seem that interested in solving the problem, they seemed more interested in, I don’t know, complaining,” he says. The cops weren’t much help, either. They’d show up hours after being called and ask whether the perpetrators were still there (they obviously weren’t) and which way they’d gone (what does it matter if it was six hours ago?).

Retail theft is a problem, albeit one that can be difficult to unpack. Some people overstate the spike in shoplifting, while others underplay it. Part of the matter is there just isn’t great data out there on what’s going on.

Figuring out what to do about it all was above Jonathan’s pay grade. He’s got some ideas, like increasing staffing and, really, locking up the liquor, which would mean more work for employees but would also have increased safety. But these solutions would all cost money the company was apparently not willing to dole out.

I interviewed more than a dozen workers in retail and loss prevention — and two retail thieves — about what the country’s supposed shoplifting epidemic looks and feels like on the ground. In conversation after conversation, one thing became clear: While many corporations are frustrated by retail theft, they’re not doing enough to try to solve it.

As David Rey, the author of Larceny on 34th Street: An In-Depth Look at Professional Shoplifting in One of the World’s Largest Stores – A Memoir, explained to Vox in an interview, “Most retailers really don’t spend [money] when it comes to asset protection, when it comes to the resources needed to protect themselves from shoplifting ... because there’s no return on the investment.”

Some amount of shoplifting is always going to happen. “Shrink” — retail-speak for missing inventory that may have been stolen by outside parties or its own workers, damaged, or just plain lost — is inevitable. According to the National Retail Federation, the average shrinkage increased from 1.4 percent in 2021 to 1.6 percent in 2022. Taken as a percentage of sales, that translates to an increase from $93.9 billion to $112.1 billion in losses. That’s a big number — it’s also one that companies could take more steps to bring down, workers say.

Last year, the Walmart that Riley worked at outside of Baltimore was well above the NRF average. It lost nearly 3 percent in sales to shrink — he says it’s a number that wouldn’t have been acceptable a few years ago but is now par for the course. Still, Riley, who worked in asset protection, says there are plenty of steps the company could have taken to make things better that it just didn’t, like hiring and retaining more associates. “If they had better sales coverage, a lot of this stuff wouldn’t happen, or if they didn’t have such high turnover,” he says.

He recalls watching a security video of a man cutting into a merchandise case, looking around as he committed the crime and seemingly noticing there was nobody in the department around to see him. He says new cashiers often fall for scams with gift cards at the register because they haven’t been properly trained, and self-checkout aisles go woefully under-watched because the store doesn’t have the labor budget to staff them. “Walmart’s really going heavy on the technology side of it right now, but all the upgraded tracking systems and computers in the world can’t make as much of a difference as having somebody actually in each aisle, or even in each department,” he says.

One former manager at Ulta Beauty in Illinois recalled seeing the same handful of men coming into the store over and over, loading up on fragrances, and walking out the door. It spooked workers and customers alike. Reporting the thefts, doing inventory, and restocking added to her workload, not to mention the extra time on talking to police and even going to court. Having a security guard at the door — even if the guard couldn’t really do anything — did make some difference, but the company wasn’t always willing to pay for it. The same goes for extra payroll. “It was just a cycle,” she says.

A worker at OfficeMax says she finds empty ink cartridge packages lying around almost every shift, their contents having been lifted. She and her coworkers get lectured over it, but what are they supposed to do? She can’t go past aisle 5 while still keeping an eye on the register. “We’re stretched so thin,” she says.

“All these companies that are screaming about theft, they’re kind of complicit in it because they keep reducing staff,” says Steven Rowland, the host of The Retail Warzone podcast and a former retail store manager. “From an hourly standpoint, a lot of these folks feel like they’re not paid enough to care anyway. And then you have store managers who are bleeding out, basically, because they have a lack of payroll, they don’t have enough staff just to get their basic functions done.”

Nobody wants retail workers to be acting as vigilantes — indeed, employers actively encourage them not to be, as situations can turn dangerous and even deadly. In mid-October, a GameStop employee shot and killed a man who attempted to steal five boxes of Pokemon cards. Months earlier in April, a shoplifter shot and killed a Home Depot employee who tried to stop her.

Mark, a loss prevention specialist who has worked for companies such as Walmart, Lowe’s, and Home Depot, says sometimes the issue is firms aren’t even sure what exactly they want to focus on. “Are you guys focused on theft? Or are you guys focused on shrinking? Because there’s a big difference between the two,” he says. “One is more glamorous and more showy, while the other, focusing on shrink, you’re attacking your business model and your operational spend.”

Companies can be quick to blame shrink on external theft, but it might be employees who are stealing, or merchandise that’s lost in transit. Say it’s a hardware store and 10 $400 leaf blowers are supposed to come in a pallet and nine show up, or one is a $200 model but nobody checks. “It’s extra time and extra money to look into something like that,” he says.

It’s difficult to estimate exactly how much it would cost companies to really go after the shoplifting problem. Many retailers say that they are spending more to combat retail theft than they have in the past. In its 2022 annual report, Home Depot made note that combating shrink and theft and keeping stores safe requires “operational changes” that could increase costs and make the store experience worse for customers and associates alike. (Nobody likes the whole unlock-the-box-to-buy song and dance.)

It’s not even clear exactly how much money is being spent to fight theft right now, explains Jeff Prusan, a security and loss prevention consultant to the retail industry. Retailers don’t generally disclose the data, payroll increases vary by retailer and job purpose (employee versus loss prevention specialist versus private security guard), and the amortization of long-term security solutions, such as cameras and alarms, can be complicated to factor in. “There are so many variables in these situations that it is difficult to quantify,” he says.

There’s no strong consensus about what would really work, investment-wise. Loss prevention doesn’t bring in revenue, it’s just an expense. “Corporate offices want to see a profit. Marketing brings profits, and the buyers bring in profits. Loss prevention, in and of itself, does not bring any profits. We just try to deter loss,” says one loss prevention agent who works at a corporate office for a national retailer. “Loss prevention, typically, is the most underfunded department of any company.”

I’m not going to litigate the size and scope of shoplifting in America, offer opinions over whether it’s really a “victimless” crime to steal makeup from a multibillion-dollar corporation, or question if retailers are overplaying their hands by blaming so many of their problems on shoplifting. I’m not getting into public policy questions, either, on whether bail reform or the amount at which a state considers theft a felony impacts shoplifting rates. But I do think it’s important to acknowledge that this is a tough nut to crack. At the core of retail theft are all sorts of financial incentives on multiple sides that contribute to the problem.

Companies can and do try to crack down on theft by locking items up, but unless they really have enough workers to unlock everything, it’s a pickle, business-wise, not to mention an annoyance for customers. “Lock up your whole store and you’ll never lose anything. You’ll also never sell anything,” says Joshua Jacobson, a loss prevention professional in California. “Sales are more important to a company than shopping theft.”

Organized retail crime operations made up of boosters — people who steal the goods — and fences — those who purchase or receive and resell the merchandise — do actually exist, and they are difficult to combat. Stores and police departments can and do build up cases against them and make arrests, but it can be a bit of a game of whack-a-mole.

Most workers say that even when they catch boosters in the act, they blow right past them, and they’re often not allowed to say anything at all for safety reasons. That includes security staff, many of whom aren’t permitted to make physical contact with thieves (some say they want to be allowed to be “hands-on,” though you can see where this could start to become a problem on multiple fronts, from liability to safety). Stolen products wind up sold in the open on the street or online on platforms like Amazon and Facebook. In June, the INFORM Consumers Act became law at the federal level, which requires online marketplaces to verify and disclose information on “high-volume third-party sellers” in an attempt to crack down on organized retail crime. It’s not yet clear how much of an impact it’s making.

I found someone on Facebook Marketplace recently selling deodorant and a variety of hygiene products in Brooklyn for well under the price I’d find at a store. When I asked where they got them from, they replied, “On clearance.” I have my doubts.

One former booster told me he got into retail theft on a “massive scale” to support a drug habit. (He’s now been sober for over three months and has a regular job.) He described going to Home Depot and Lowe’s dressed relatively nicely — with a collared shirt, maybe a Bluetooth piece in his ear — and asking workers to get him generators or tools down from shelves. He’d put them on a cart, walk out the door, sometimes with a manufactured receipt in his hand, and get into an Uber or Lyft he’d ordered. “The times I was stopped, I never would acknowledge the fact that I’d just been caught,” he says. “If it’s already on the cart, I’m committed.” He’d then sell the items to a local pawnbroker or even to a foreman on a construction site. They had to have figured out what he was up to, handing over a brand-new generator for a fraction of the cost, but they didn’t ask. “They’ve got to be pretty stupid not to know.”

Asked whether he thought there was anything that would have stopped him, he says maybe customer service — where retail employees approach and sort of ask what’s up, if someone needs help, even acknowledge what’s going on — might have been a deterrent. He also notes the undercover loss-prevention people were often easy to spot, walking around aisles endlessly and picking up random items at random. “I go with my gut a lot,” he says. “At that point, I feel like they might know that I’m up to something and I’m not going to do it.”

Another booster in Hawaii described getting “orders” from fencing operations for a variety of items — Tide pods, baby formula, Spam. She and a friend stole Christmas lights for a woman who worked at a local clinic. After they dropped them off and were paid, the woman told them her coworkers had orders for them, too. “People aren’t going to ask, ‘How did you get this? Is this stolen?’” she says. “It’s a don’t ask, don’t tell kind of thing. They know it’s stolen, but it’s a better deal.”

Shoplifting isn’t her favorite — it’s a high risk for small amounts of money — but it’s something she’s done when she needs to for cash. (She told me her “passion” is credit card fraud.) As to what might stop her, it’s a hard question to answer. “People are going to do what they want to do regardless,” she says. She tries not to take anything from mom-and-pop stores, only big chain retailers. The Ross in her area regularly throws out a lot of its inventory in dumpsters behind the store to replace it with new. “We could wait until stuff goes in the dumpster, but why?”

“The professionals, unfortunately, are rarely deterred, and the biggest deterrent to them is having off-duty law enforcement, which is very expensive,” says Prusan, the security and loss prevention consultant. “You can’t catch everybody, no matter who you are.”

In certain progressive circles, there can be a bit of a “who cares” attitude around retail theft, especially when it hits big companies like Walmart and Home Depot. There’s also often skepticism about just how much stuff is being shoplifted, an assumption that companies are overstating the losses. Target recently blamed theft for its decision to close multiple locations even as other locations opened. While there may be some exaggeration (Walgreens has admitted it may be “cried too much” over retail theft), publicly traded companies get into trouble when they lie to investors, so they’re probably not making this all up.

Most of the workers I spoke to weren’t agonizing over their employers losing merchandise to theft, but they weren’t unbothered by its effects. They wondered about hours and staffing being cut even further to try to make up for losses. They worried about their safety. They figured some of what’s going on may eventually lead to higher prices. They often asked why their companies weren’t at least trying to do more about it — having someone at the door, more people on the floor, just listening to their feedback — even if that was going to cost them a little more.

One night, Jonathan, who worked at the retail pharmacy chain, was about to close with just one other worker on staff when a man walked in with a gun. The guy told them to empty the store’s safe — he wasn’t interested in their personal belongings — and at one point suggested Jonathan check on his coworker to make sure she was okay. “That kind of stuck with me,” he says, “because the robber actually showed more concern for our well-being than my manager or the police did.”

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