The US added 165,000 jobs in October, and economists are celebrating. The unemployment rate ticked down to 4.1%. Initial figures for August and September were revised upward by a combined 84,000 jobs. On the surface, this looks like a resilient labor market weathering economic uncertainty. But beneath these headlines lies a troubling reality that explains why Americans overwhelmingly expressed frustration about the economy in the midterm elections: wage growth simply cannot outpace the cost of living.
The numbers tell this story clearly. Average hourly earnings increased at an annual rate of 3.1% in October, yet inflation over recent months has largely outpaced this wage growth. In September alone, the annualized inflation rate stood at 3.7%. Meanwhile, gas prices remain approximately $1 a gallon higher than a year ago due to the ongoing war in the Middle East, and diesel prices—critical to supply chains nationwide—sit 60% higher than prewar levels. When people are earning 3.1% more annually but facing inflation eating away at their purchasing power, they feel poorer. They are poorer.
Heather Long, chief economist at the Navy Federal Credit Union, captured this sentiment perfectly before Friday's report: "The labor market is a good example of why people are frustrated." She's right. A job is only valuable if the paycheck actually allows someone to get ahead, not merely get by. The so-called "low-hire, low-fire" labor market—with sluggish job growth but few layoffs—provides some stability, but stability without prosperity rings hollow to workers struggling with grocery bills and gas prices.
The Federal Reserve understands the problem, which is why it raised interest rates in September to a range of 3.75%-4% and economists are expecting another rate hike in December. But here's the uncomfortable truth: raising rates to combat inflation often slows job growth and can trigger layoffs. We're caught between competing imperatives. The tech-heavy Nasdaq's recent plunge into correction territory, dropping 10% below its most recent peak before briefly recovering, suggests markets are also sensing this instability.
October's job report should not obscure the central economic challenge facing this administration and the Federal Reserve: the labor market cannot solve an inflation problem on its own. Yes, layoffs fell to their lowest level in a year and a half, and Challenger, Gray & Christmas tracked just under 44,000 layoffs in October—a 71% decrease from last October. These are positive signs. But until wage growth consistently exceeds inflation, job growth alone will not ease the financial squeeze Americans described at the ballot box. Policymakers must acknowledge this gap and act accordingly.