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

  • Non-government payrolls rise by 263,000 in November
  • The unemployment rate is stable at 3.7 percent; the participation rate decreases
  • The average hourly wage will increase by 0.6 percent; It increased by 5.1 percent

WASHINGTON, Dec 2 (Reuters) – U.S. employers hired more workers than expected in November and raised wages, dispelling growing recession fears, but that is likely to stop the Federal Reserve from slowing its pace of interest rate hikes from this month. . .

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

Firmness and strength in the labor market will keep the Fed on track to tighten its monetary policy until at least the first half of 2023, and could raise its policy rate to higher levels, where it could stay for some time. It also highlights that the sustainability of the economy will be a difficult year.

“The November labor market report was 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 stay in tightening mode for the foreseeable future with 50 basis points in December and February.”

Non-government payrolls increased by 263,000 jobs last month. October data to show payrolls rose by 284,000 instead of 261,000 as previously reported. Monthly job gains of 100,000 are needed to keep pace with labor force growth.

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Economists polled by Reuters predicted wages would rise by 200,000. Estimates ranged from 133,000 to 270,000. Employment growth averaged 392,000 per month in 2021, compared with 562,000.

Hiring remains strong despite announcements of thousands of job cuts by tech companies including Twitter, Amazon ( AMZN.O ) and Meta ( META.O ), the parent of Facebook.

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

At the end of October, there were 10.3 million job openings, or 1.7 jobs for every one unemployed, most of them in the leisure and hospitality industry, as well as in health and social assistance.

Employment gains last month were driven by the leisure and hospitality sector, which added 88,000 jobs, most of them in restaurants and bars. Leisure and hospitality employment is 980,000 below pre-pandemic levels.

Health care added 45,000 jobs, while government payrolls increased by 42,000. Despite the turmoil in the housing market, construction employment increased by 20,000 jobs, while manufacturing added 14,000 jobs.

But retail employment fell by 30,000 jobs, with most of the losses at general merchandise stores. Wages for transport and warehouse workers decreased by 15,000. Temporary help jobs, a segment typically considered a sign of future hiring, fell by 17,200.

Nick Bunker, head of economic research at Indeed Hiring Lab, said: “The labor market may experience some bumps in the road next year, but it’s going to be a great ride in 2023.”

Fed Chairman Jerome Powell said on Wednesday that the US central bank could reduce the pace of rate hikes “in December”. The Fed raised its policy rate this year by 375 basis points from zero to 3.75% to 4.00% in the fastest rate hike since the 1980s.

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

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

WAGES SHOULD BE ACCELERATED

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

Reuters Graphics Reuters Graphics

Broad wage growth suggests that the stabilization of inflation seen in October will be gradual. It also raised concerns about a wage-price spiral that could keep rising service prices out of the shelter component, economists said. Fed officials have declined to call out the price-wage spiral.

“The broad nature of the increase and its consistency with other wage data lead us to believe that a nearly 5% increase in average hourly wages is not unreasonable,” said Andrew Hollenhorst, chief U.S. economist at Citigroup in New York.

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Strong wage growth is helping to drive consumer spending, which rose in October, leading economists to expect next year’s expected recession to be short and slow. But some signs of weakness are emerging in the labor market.

Household employment fell by 138,000 jobs, the second straight monthly decline. Although household employment is volatile because it’s drawn from a smaller sample than nonfarm payrolls, economists said it’s important to note the difference between the two measures.

Sofia Koropetsky, the company’s senior economist, said: “Household surveys may be better at showing turning points in the labor market than wage surveys, as wage surveys cannot adequately reflect activity in opening and closing firms, while household survey can,” Moody’s Analysis in West Chester, Pennsylvania.

However, others argue that non-farm payrolls are a better indicator and expect household employment to match payrolls.

The participation rate, or the proportion of working-age Americans who have or are looking for a job, fell to 62.1% from 62.2% in October. Some of the decline in employment and household participation was likely due to illness, with 1.6 million people saying they missed work because they were sick, up 265,000 from October.

The participation rate among Americans 55 and older has declined, possibly reflecting retirement. The ratio of employment to population decreased from 60.0% in October to 59.9%.

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

Our Standards: The Thomson Reuters Trust Principles.

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