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Oct. 7, 2022, 7:26 a.m. EDT

Hiring and job creation seen falling to 1 1/2-year low in September

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By _ Jeffry Bartash

The number of new workers hired in September could fall to a one-and-a-half-year low, but the U.S. jobs market is still too hot for a Federal Reserve that worries a labor shortage is adding to high inflation.

Here’s what to watch in the employment report on Friday morning :

Wall Street forecast

The increase in employment in September is forecast to slip to 275,000 from 315,000 in August, according to a poll of economists by The Wall Street Journal .

If so, it would mark the smallest gain since early 2021.

The slowdown in job creation comes as no surprise. Millions of people were hired or rehired after the economy began to recover from the pandemic, leaving relatively little available labor on the sidelines. Employment last month surpassed pre-pandemic levels for the first time.

Hiring is expected to weaken even further, however, as the Federal Reserve raises interest rates to try to suppress the highest inflation in 40 years. Higher rates usually slow the economy.

“Employment growth should decelerate more quickly as employers reduce hiring against a backdrop of a slowing economy and declining corporate profits,” said lead economist Nancy Vanden Houten of Oxford Economics.

Evidence is mounting that companies are cutting back. J ob openings sank by more than 1 million in August , for example, and layoffs rose to an 18-month high.

A pair of reports by the Institute for Supply Management, meanwhile, found that more firms are adopting hiring freezes , resorting to temporary help or curtailing plans to fill some jobs.

Unemployment rate

Wall Street /zigman2/quotes/210598065/realtime DJIA +0.10% /zigman2/quotes/210599714/realtime SPX -0.12% predicts the unemployment rate will be unchanged at 3.7%, keeping it near a half-century low.

The low unemployment rate explains why companies have so much trouble filling open jobs — there’s simply not enough labor to go around.

The downside of a tight labor market, at least according to the Fed, is that it could make it harder to reduce inflation. Labor is a big cost of most goods and services and rising wages tend to push prices higher.

The central bank aims to slow the economy enough so the jobless rate marches back up to 4.4% by next year.

Size of labor force

The share of the working-age population in the labor force rebounded in August to match a six-month high of 62.4%. That means 62.4 of every 100 able-bodied people 16 or older are working or looking for work.

The Fed would like to see the number go even higher because it would mean more people are joining the workforce and easing the shortage of labor. It would also alleviate the upward pressure on wages.

Worker pay

Hourly pay has jumped 5.2% in the past year — the fastest clip since the early 1980s.

Economists forecast a sizable 0.3% gain in hourly wages in September, keeping the yearly increase at or above 5%.

That’s too much for the Fed’s liking. Wages were growing at a more modest 3% pace before the pandemic, a number with which the central bank would be a lot more comfortable.

Fed reaction

Senior central bankers believe the labor market is already starting to soften . A weaker jobs report and slowing wage growth would confirm their view.

Yet a stronger-than-expected increase in hiring would keep the pressure on the Fed as it attempts to rein in the worst about of inflation since the early 1980s. Financial markets could also react poorly to a strong September jobs report.

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