Impossibly Strong Economy | Mint

On Friday, the Labor Department reported that the U.S. added a seasonally adjusted 150,000 jobs in October from the previous month, on par with September’s gain of 297,000 jobs. Some of those actions were due to auto strikes, which were resolved, but temporarily workers did not collect their salaries.

Average hourly earnings rose 0.2% from a month ago, up 4.1% from a year earlier. This is the smallest year-on-year gain since June 2021, although wages are now outstripping inflation.

A key takeaway is that the job market is moderate but not inflexible — a fact reinforced by a range of data, including low weekly jobless claims and layoffs. For another, the Federal Reserve may be tightening: Futures markets on Friday morning put the chances of the central bank raising its target range overnight at less than 10% at its December meeting. The yield on the 10-year Treasury note, which was as low as 5% two weeks ago, retreated on Friday, falling to 4.53% by midnight.

This is not the job market the central bank expected. When policymakers issued projections last December, they predicted the unemployment rate would average 4.6% in the fourth quarter of this year, compared to the 3.7% rate (revised to 3.6%) they saw in the November 2022 jobs report. This is tantamount to a recessionary forecast, but they don’t say that because such a large increase in the unemployment rate would be considered a strong signal that America is in a recession. Friday’s report put the October unemployment rate at 3.9%.

Economists also got it wrong. In October last year, pollsters conducted by The Wall Street Journal projected the unemployment rate at an average of 4.7% by the end of 2023. They put the chances of a recession within the next 12 months at 63%. Last month, they cut the chance of a recession to 48%. As a group, available data show that economists have never predicted a recession before it actually started. It now appears that what they once predicted was wrong or premature.

It’s easy to scoff at other people’s past forecasts, but considering the hurdles the economy has had to clear, it’s actually surprising that it’s done so well. A year ago, there was some hope that a continued recovery in the services sector and service sector jobs would help pick up the slack as the goods sector adjusted to lower demand. But there were also concerns that the services sector would run out of momentum before the goods sector could find its footing.

Another worry: The excess savings Americans built up after the pandemic could be depleted, reducing their spending power. But recent revisions to available data suggest there is more money left in the tank than previously thought.

In addition, inflation has cooled despite the addition of 2.4 million jobs so far this year, and gross domestic product is expanding faster than economists had expected. Additionally, at least so far this year, the economy has made it through a regional banking crisis, sharp increases in both short- and long-term borrowing costs and student-loan payments.

The jury is still out on what happens next. A cooling in the job market, for example, could turn into a downward spiral as the full effect of the Fed’s past rate hikes begins to take hold. Inflation, still high, could rise again, prompting the central bank to further tighten the screws.

But the economy’s chances of avoiding recession look stronger now than they did a few months ago. There will be a lot of luck involved, but it will be something to celebrate.

Write to Justin Lahart at [email protected]