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

  • Nonfarm payrolls rise by 263,000 in November
  • Unemployment rate steady at 3.7%; participation rate falls
  • Average hourly earnings rose 0.6%; up 5.1% year-over-year

WASHINGTON, Dec 2 (Reuters) – U.S. employers hired more workers than expected and boosted wages in November, shrugging off fears of a recession, but that may not stop the Federal Reserve from easing monetary policy this month. Slow hike pace.

Despite strong job growth, some details of Friday’s closely watched Labor Department employment report were soft, which economists said could signal upcoming labor market weakness. Household employment fell for the second straight month. Some 186,000 people left the labor force, and the unemployment rate was unchanged at 3.7%.

The tightness and strength of the labor market keeps the Fed on a tightening monetary policy path through at least the first half of 2023, with the possibility of raising its policy rate to a higher level that is likely to remain there for some time. It also underscores the economy’s resilience heading into what is expected to be a difficult year.

“The November labor market report was clearly bad news for the Fed’s inflation war,” said Jan Groen, chief U.S. macro strategist at TD Securities in New York. “The Fed has no choice but to stay in tightening mode in the near term, raising rates by 50 basis points in December and February.”

Nonfarm payrolls increased by 263,000 last month. Data for October was revised up to show payrolls rising by 284,000 instead of the previously reported 261,000. An additional 100,000 jobs are needed each month to keep up with the workforce growth.

Economists polled by Reuters had expected a gain of 200,000 jobs. Estimates range from 133,000 to 270,000. Employment growth has averaged 392,000 a month this year, compared with 562,000 in 2021.

Hiring was strong even as tech companies including Twitter, Amazon (AMZN.O) and Facebook parent Meta (META.O) announced thousands of layoffs.

Economists say the firms are resizing after overhiring during the COVID-19 pandemic, noting that smaller firms still desperately need workers.

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

Last month’s job gains were led by the leisure and hospitality sector, which added 88,000 jobs, most of them in restaurants and bars. Employment in leisure and hospitality was still down 980,000 from pre-pandemic levels.

The health care industry added 45,000 jobs, while government employment rose by 42,000. Construction jobs rose by 20,000 despite the turmoil in the housing market, while manufacturing added 14,000 jobs.

But retail jobs fell by 30,000, with most of the losses at department stores. Transportation and warehousing jobs fell by 15,000. Temporary help positions, often considered a harbinger of future hiring, fell by 17,200.

“The labor market may experience some bumps next year, but it’s cruising into 2023,” said Nick Bunker, director of economic research at Indeed Hiring Lab.

Federal Reserve Chairman Jerome Powell said on Wednesday the U.S. central bank could scale back its pace of rate hikes “as soon as December.” The Fed raised its policy rate by 375 basis points this year from near zero to a range of 3.75% to 4.00%, the fastest cycle of rate hikes since the 1980s.

Policymakers will meet in December. 13 and 14. Attention now turns to November consumer price data due on December 13. 13.

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

salary increase

Average hourly earnings rose 0.6% after rising 0.5% in October as the labor market remained tight. That lifted annual wage growth to 5.1% from 4.9% in October. Wage growth peaked at 5.6% in March.

Reuters photo Reuters photo

Broad wage growth suggests that the moderation in inflation evident in October’s data will be gradual. Economists say it has also raised concerns about a wage price spiral that could lead to higher prices for services outside the housing component. Fed officials shied away from calling price-wage spirals.

“The breadth of the increase and its consistency with other wage data makes us think that average hourly earnings growth of around 5% is not an anomaly,” said Andrew Hollenhorst, chief U.S. economist at Citigroup in New York. “

Strong wage growth has helped boost consumer spending, which surged in October, leading economists to see the expected recession next year as short and mild. But there were some signs of weakness in the labor market.

Household employment fell by 138,000, the second straight monthly decline. Although household employment is drawn from a smaller sample than nonfarm payrolls and thus tends to be more volatile, economists say the difference between the two measures is cause for concern.

“Household surveys are likely to capture turning points in the labor market better than wage surveys, which cannot adequately capture activity in opening and closing firms, whereas household surveys can,” said senior economist Sophia Koropeckyj. Moody’s Analytics in West Chester, Pennsylvania.

Others, however, see nonfarm payrolls as a better measure and expect household employment to converge with employment.

The participation rate, or the percentage of working-age Americans who have found a job or are looking for one, slipped to 62.1% from 62.2% in October. Some of the decline in household employment and participation could be due to illness, with 1.6 million people saying they were absent from work due to illness, up 265,000 from October.

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

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

Our Standards: The Thomson Reuters Trust Principles.

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