US job growth expected to pick up in October, with moderation in wage gains

US nonfarm payrolls are expected to increase by 65,000 in October, up from 29,000 in September, according to a Reuters survey of economists. However, wage growth is anticipated to moderate to below 3.0% for the first time in nearly 5-1/2 years, which may indicate weakening inflationary pressures. The unemployment rate is projected to remain steady at 4.2%, possibly dropping to 4.1%.

Despite historically low layoffs and a recent surge in job openings, some economists argue that a dwindling pool of workers due to immigration restrictions and retirements is responsible for the low unemployment rate. James Knightley, chief international economist at ING, suggests that weak wage growth could help dampen medium-term price pressures.

The economy is expected to create around 68,000 jobs per month, meeting the growth needed in the working-age population. However, factors such as the US-Israel conflict, energy price hikes, and uncertainty over staffing needs due to the integration of AI in business operations may be limiting job creation. Average hourly earnings are forecast to rise by 0.3% in October, resulting in a 2.9% increase in wages over the past year, marking the first annual decline below 3% since May 2021.

This wage slowdown could further erode household incomes, already strained by inflation. The Federal Reserve is expected to raise interest rates in December, but some experts believe that weak wage pressure may limit the number of rate hikes in the coming year.