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

  • Non-farm payrolls increase 263,000 in November
  • The unemployment rate stable at 3.7%; the participation rate decreases
  • Average hourly earnings increase by 0.6%; an increase of 5.1% year on year

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

Despite the strong job growth, some details of the closely watched Labor Department jobs report on Friday were a bit weak, which economists said could point to a weakening of – the following labor market. Household employment decreased 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 keeps the Fed on track to tighten its monetary policy through at least the first half of 2023, and it could raise the policy rate its to a higher level where you can stay for a while. It also highlights the resilience of the economy heading into what was expected to be a tough year.

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

Nonfarm payrolls increased by 263,000 jobs last month. Data for October was revised higher to show that wages rose 284,000 instead of 261,000 as previously reported. Monthly employment growth of 100,000 is needed to keep pace with labor force growth.

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Economists polled by Reuters had predicted that wages would increase 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 remains strong despite announcements of thousands of job cuts from tech companies, including Twitter, Amazon ( AMZN.O ) and Meta ( META.O ), the parent of Facebook.

Economists say these companies are doing well after over-hiring during the COVID-19 pandemic, noting that small firms are still desperate for workers.

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

The increase in employment last month was led by the leisure and hospitality sector, which added 88,000 jobs, most of them in restaurants and bars. Employment in entertainment and hospitality is still down 980,000 from pre-pandemic levels.

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

But retail trade employment fell by 30,000 jobs, with most of the losses in general merchandise stores. Transport and warehousing wages fell by 15,000 jobs. Temporary help jobs, a sector usually seen as a future hiring presbytery, fell by 17,200.

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

The President of the Fed Jerome Powell said on Wednesday that the central bank of the United States could lower back the pace of its rate increases “as soon as December.” The Fed has raised its policy rate by 375 basis points this year from near zero to a range of 3.75%-4.00% in the fastest rate cycle since the 1980s.

Policy makers meet on 13 and 14 December. Attention now turns to the November consumer price data due on 13 December.

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

WAGES ACCELERATE

With the labor market still tight, average hourly earnings rose 0.6% after advancing 0.5% in October. This increased the annual increase in wages to 5.1% from 4.9% in October. Wage growth peaked at 5.6% in March.

Reuters graphic Reuters graphic

The broad wage increase suggests that the moderation in inflation, evident in the October data, will be gradual. Economists said this also raised concerns about a wage and price spiral that could keep service prices rising outside of the shelter component. Fed officials hesitated to call it a price-wage spiral.

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

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Strong wage increases are helping to spur consumer spending, which rose in October, leading economists to believe that an anticipated recession next year will be short and shallow. But there are some signs of weakness emerging in the labor market.

Domestic employment fell by 138,000 jobs, the second consecutive monthly decline. Although household employment tends to be volatile since it is taken from a smaller sample compared to non-agricultural wages, economists said that the divergence between these two measures was important to look at.

“Household surveys may be better at capturing labor market turning points than wage surveys, as wage surveys cannot adequately capture the activity in opening and closing firms while household surveys can,” said Sophia Koropeckyj, senior economist at Moody’s Analytics in West Chester, Pennsylvania.

Others, however, argued that non-agricultural wages were a better measure and expected household employment to converge with wages.

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

The participation rate for Americans 55 and older has declined, possibly reflecting retirement. The employment to 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 Fiduciary Principles.

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