U.S. labor market shrugs off recession fears; keeps Fed on tightening path

  • Nonfarm payrolls rose 263,000 in November
  • Unemployment rate steady at 3.7%; Participation rate decreases
  • Average hourly earnings rose 0.6%; has grown by 5.1% annually

WASHINGTON, Dec 2 (Reuters) – U.S. employers hired more workers and increased wages than expected in November, easing growing fears of a recession, but that will not stop the Federal Reserve from slowing the pace of interest rate hikes starting this month. .

Despite strong job growth, some details in the Labor Department’s closely watched jobs report were a bit subdued on Friday, which economists said could flag upcoming labor market weakness. Household employment fell for the second month in a row. About 186,000 people left the labor force, keeping the unemployment rate unchanged at 3.7%.

The tightening and strength of the labor market puts the Fed on track to tighten its monetary policy through at least the first half of 2023, and could raise its policy rate to higher levels where it could remain for some time. It also underscores the economy’s resilience in what was expected to be a tough year.

“November’s labor market report was clearly bad news for the Fed’s war on inflation,” said Jan Groen, chief U.S. macro strategist at TD Securities in New York. “The Fed has no choice but to remain in tight mode for the foreseeable future with 50 basis point hikes in December and February.”

Nonfarm payrolls rose by 263,000 jobs last month. Data for October was revised upward to show payrolls rose 284,000 instead of 261,000 as previously reported. Employment of 100,000 per month is required to keep pace with labor force growth.

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Economists polled by Reuters had predicted payrolls would rise by 200,000. Estimates ranged from 133,000 to 270,000. Job growth averaged 392,000 per month this year, compared to 562,000 in 2021.

Hiring has been strong even as technology companies including Facebook parent Twitter, Amazon ( AMZN.O ) and Meta ( META.O ) announced thousands of job cuts.

Economists say these companies are right-sizing after over-hiring during the COVID-19 pandemic, noting that smaller firms are desperate for workers.

There were 10.3 million job openings at the end of October, 1.7 openings for every unemployed person, many of them in the leisure and hospitality as well as health care and social assistance industries.

Gains in employment last month were led by the leisure and hospitality sector, which added 88,000 jobs, most of them in restaurants and bars. Leisure and hospitality employment remains 980,000 below its pre-pandemic level.

45,000 jobs have been added in health services, while government salaries have increased by 42,000. Despite housing market turmoil, construction employment increased by 20,000 jobs, while manufacturing added 14,000 jobs.

But retail trade employment fell by 30,000 jobs, mostly at general merchandise stores. Transportation and warehouse payrolls fell by 15,000 jobs. Temporary help jobs, a segment generally considered a harbinger of future hiring, fell by 17,200.

“The labor market may face some bumps in the road next year, but it’s on track for 2023,” said Nick Bunker, head of economic research at Indeed Hiring Lab.

Fed Chairman Jerome Powell said on Wednesday that the US central bank could scale back the pace of its rate hikes “as early as December”. The Fed has raised its policy rate this year by 375 basis points from zero to a 3.75%-4.00% range in the fastest rate-hiking cycle since the 1980s.

Policymakers meet on December 13 and 14. Attention now shifts to November’s consumer price data due on December 13.

Stocks fell on Wall Street. The dollar rose against a basket of currencies. US Treasury prices were lower.

Wages are fast

With the labor market still tight, average hourly earnings rose 0.6% after advancing 0.5% in October. This lifted annual wage growth to 5.1% from 4.9% in October. Wage growth reached 5.6% in March.

Reuters Graphics Reuters Graphics

The broad wage gains evident in the October data suggest that the decline in inflation will be gradual. Economists said this raised concerns about a wage-price spiral that could cause service prices to rise outside the shelter component. Fed officials have shied away from calling it a price-wage spiral.

“The broad-based nature of the increase and its consistency with other data on wages lead us to think that average hourly earnings growth of about 5% is not out of the question,” said Andrew Hollenhorst, chief U.S. economist at Citigroup in New York.

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With strong wage gains helping to drive consumer spending, which rose in October, economists believe next year’s projected recession will be shorter and shorter. However, some weaknesses have appeared in the labor market.

Domestic employment fell by 138,000 jobs, the second straight monthly decline. Although domestic employment tends to be volatile because it is drawn from a smaller sample than nonfarm payrolls, economists say it’s important to distinguish between the two measures.

“The household survey may be better at capturing turning points in the labor market than the payroll survey, as the payroll survey is unable to adequately capture the opening and closing of firms as the household survey does,” said Sofia Koropeckies, senior economist. Moody’s Analytics in West Chester, Pennsylvania.

Others, however, argue that nonfarm payrolls are a better gauge and that payrolls are expected to match household employment.

The participation rate, or the proportion of Americans of working age, fell to 62.1% from 62.2% in October. Some of the decline in household employment and participation can be attributed to illness, with 1.6 million people saying they were absent from work due to illness, an increase of 265,000 from October.

Participation rates for Americans age 55 and older declined, likely reflecting retirement. The employment-to-population ratio fell to 59.9% from 60.0% in October.

Reporting by Lucia Mutikani; Edited by Chizu Nomiyama and Andrea Ricci

Our Standards: Thomson Reuters Trust Principles.

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