US hiring and wages extend strong gains, keeping pressure on Fed

Source: AP (Representative Image)

US employers added more jobs than forecast and wages surged by the most in nearly a year, pointing to enduring inflation pressures that boost chances of higher interest rates from the Federal Reserve.

Nonfarm payrolls increased 263,000 in November after an upwardly revised 284,000 gain in October, a Labor Department report showed Friday. The unemployment rate held at 3.7% as participation eased. Average hourly earnings rose twice as much as forecast after an upward revision to the prior month.

The median estimates in a Bloomberg survey of economists called for a 200,000 advance in payrolls and for the unemployment rate to hold at 3.7%. US stocks opened lower and Treasury yields surged as investors anticipated a more aggressive stance from the Fed.

“The net read is that the labor market is still far too tight and cooling only very gradually,” Mizuho economists Alex Pelle and Steven Ricchiuto said in a note. “It suggests that the economy is resilient and can handle more rate hikes and restrictive policy for longer.”

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Job gains were concentrated in a few categories, led by growth in leisure and hospitality, healthcare and government. Meanwhile, employers in retail, transportation and warehousing and temporary help services cut staff.

The better-than-expected payrolls increase underscores the enduring strength of the jobs market despite rising interest rates and concerns of a looming recession. The persistent mismatch between the supply and demand for workers continues to underpin wage growth and has led many economists to expect businesses will be more hesitant to lay off workers in a potential downturn.

That said, some sectors are beginning to show more notable signs of weakening. Many economists expect unemployment to rise next year -- significantly in some cases -- as tighter Fed policy risks pushing the US into recession.

What Bloomberg Economics Says...

“The resurgence of average hourly earnings growth shows labor shortages are still pressuring inflation, pushing back against the idea -- supported by a few Fed officials, as indicated in the November FOMC minutes -- that wage growth is cooling fast. Given the slow adjustment in the labor market, Fed officials will likely have to raise their terminal-rate forecast from what they wrote down in the September dot plot.”

Fed Chair Jerome Powell said earlier this week that a moderation in demand for labor is needed to bring the jobs market back into balance, and the central bank has only seen “tentative signs” of that so far. He also noted the importance wage growth -- and the labor market more generally -- will play in determining the path of inflation.

The jobs report showed average hourly earnings rose 0.6% in November in a broad-based gain that was the biggest since January, and were up 5.1% from a year earlier. Wages for production and nonsupervisory workers climbed 0.7% from the prior month, the most in almost a year. The pace of pay raises is inconsistent with the Fed’s 2% inflation target.

This is the last jobs report Fed officials will have in hand before their December policy meeting, where the central bank is expected to step down the pace of interest-rate hikes to a still-aggressive half percentage point. Inflation data over the past month have indicated that price pressures are slowly cooling, but remain very elevated.

The US jobs report is made up of two surveys -- one of households and one of businesses. Similar to last month, the two data sets pointed in different directions. While the business survey showed strong hiring, that of households -- which can be more volatile -- indicated lower employment for a second month.

Read more: Wall Street Sees Jobs Beat as ‘Wrong Report at the Wrong Time’

The labor force participation rate -- the share of the population that is working or looking for work -- edged lower to 62.1%, a four-month low. Among those ages 25 to 54, it declined for a third month, led by women.

While the unemployment rate fell for Asian and Hispanic workers, it was due in part to lower participation. A drop in the jobless rate for Black Americans was driven by lower participation among women while men saw outsize gains.

Employed Americans who missed work because of illness rose to the highest since last year’s omicron wave.

The average workweek ticked down for the first time since June. Within manufacturing, hours and overtime fell. That’s consistent with other reports of declining factory activity.

Industry Level Breakdown

Employment at general merchandise stores fell for a third month to the lowest in a year

Transportation and warehousing payrolls dropped for a fourth month to the lowest since April

Despite the slowdown in the housing market, real estate and rental and leasing added jobs in the month. Construction payrolls also increased

Against the backdrop of thousands of tech layoffs, employment in information rose by the most since June. While tech jobs are spread across various sectors in the government’s report, this category captures a large segment of those workers

Separate data have pointed to some cooling in labor demand. Job openings have eased and continuing claims for unemployment insurance have steadily climbed in recent weeks to the highest since February. And a November survey showed only 18% of small business owners plan to hire in the coming months, the smallest share since early 2021.