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Big Job, Wage Gains Foil Fed's Inflation Fight

A woman working on a metal pipe in a factory.

​U.S. employers added 263,000 new jobs in November, blowing past economists' expectations for a second consecutive month, according to the latest employment report from the U.S. Bureau of Labor Statistics. The surprising total is striking evidence that one of the hottest labor markets on record is not sufficiently cooling alongside rising interest rates set by the Federal Reserve to tamp down the country's worst inflation in 40 years.

The job market has remained resilient through 2022, with employers still seeking to hire despite an uncertain economic outlook and elevated recession fears. Total employment for October was revised up to 284,000. Job growth continues to exceed the 2019 monthly average of 164,000, though gains have slowed from the first half of the year.

The unemployment rate remained at 3.7 percent, and in another blow to the Fed's anti-inflation efforts, average hourly earnings shot up well above expectations.

"The U.S. labor market has lost some momentum this year, but it's still speeding ahead as we approach the new year," said Nick Bunker, the economic research director for North America at the Indeed Hiring Lab. "Employers are still adding jobs at a rate well above trend growth, unemployed workers are still finding jobs at elevated rates, and wage growth is still robust."

Becky Frankiewicz, president and chief commercial officer at ManpowerGroup said the report is proof that the "phenomenal labor market is showing little sign of slowdown. Despite recurring headlines of deep cutbacks—primarily in tech—other sectors have scaled up; and while we've been bracing for a downturn, the broader labor market has barely flinched."

She added that there are still nearly two jobs for each job seeker and that the labor market is still three million short of full employment.

"This is a labor market that still doesn't look like one about to tip into recession," said Daniel Zhao, Glassdoor senior economist. "The theme for much of 2022 has been that the labor market has been substantially more resilient than expected. But along with that, inflation has also been more stubbornly high than expected, so moving forward, the path to a soft landing runs through falling inflation while the job market is still robust enough to withstand a recession."

Richard Wahlquist, president and chief executive officer at the American Staffing Association commented that the report reflects what he's been hearing from employers about labor scarcity and higher wages. "Although large firm layoffs make headlines, employers across many sectors are still struggling to fill open positions and are really focusing on employee engagement and retention—holding on to the workers they have," he said. "As the Fed moves forward, they must consider that inflation-fighting efforts to push up unemployment rates—even in a tight labor market—can have a devastating effect on U.S. workers and future GDP growth."

While new weekly jobless claims have remained low, the number of people seeking ongoing unemployment benefits has been drifting upward for months. Some experts are concerned that higher interest rates will trigger more widespread layoffs and a recession in 2023.

"The Federal Reserve's efforts to curb inflation by raising interest rates is playing a role in the leveling of available jobs, which still exceeded 10 million openings in October," said Haley Damm, director of workforce planning at Adecco US. "Workers continue to have the upper hand in the labor market."

Hospitality Out in Front

Leisure and hospitality employers led job gains in November, adding 88,000 positions. "Both seasonal and permanent demand is strong for many of the businesses that were hurt most by the pandemic, such as restaurants, bars, and hotels," Damm said.

Other sectors reporting gains included health care (45,000), government (42,000) construction (20,000), and manufacturing (14,000).

"Even as tech layoffs dominated headlines in November, the impact is yet to be seen in today's jobs report as the information sector added 19,000 jobs," Zhao said.

Frankiewicz pointed out that unemployment in the tech sector remains low at 2.2 percent, and that there are hundreds of thousands of technology jobs currently available.

On the downside, retail employers reported a loss of 30,000 positions heading into the busy holiday shopping season and transportation and warehousing also saw a decline of 15,000 jobs.

"So long as there is a skills gap, the number of jobs created does little to alleviate the unemployment of those who are not endowed with the skillset those jobs require," said Giacomo Santangelo, economist at Monster. "For instance, workers laid off from tech jobs will not be helped by the new nursing or manufacturing jobs. We'll continue to see this skills gap squeeze many specialized industries."

Labor Force Participation Falls

The unemployment rate was unchanged in November and remains very low by historical standards. A broader measure of unemployment that includes discouraged workers and those holding part-time jobs for economic reasons edged lower to 6.7 percent.

But a decline in labor force participation undercuts the rest of the positive data. "Businesses are unlikely to see their hiring challenges ease, due to continued weakness in labor force participation," said Julia Pollak, chief economist at ZipRecruiter. "Not only did many workers leave the labor force during the pandemic, but workers continue to leave. Labor force participation ticked down by 0.1 percentage points to 62.1 percent. Low participation in the face of strong demand will continue to fuel wage growth pressures."

Santangelo added that while it is a positive sign that unemployment did not increase, the number of employed people fell and the number of people who left the labor market increased. "The number of unemployed people as a percentage of workers remains the same, but we are still looking at a decrease in the number of people who have jobs. And since the Fed is using unemployment as one of their determinants of how aggressive the monetary contraction can be, another month without the official unemployment rate increasing is a signal that it is safe for the Fed to continue raising rates."

Wahlquist noted that the decrease in labor force participation comes at a time when there are more than 10 million job openings, "a disturbingly high level that we have now seen for sixteen straight months."

Wages Shoot Up

Average hourly earnings jumped 0.6 percent for the month, double forecasters' estimates, and wages were up 5.1 percent year-over-year, well above the 4.6 percent expectation.

The news of continued wage increases is encouraging for workers and their families as we enter the holiday season, Wahlquist said.

But the higher-than-expected wages also sent the stock market "into a tailspin," Pollak said. "The current pace of wage growth is incompatible with the Fed's inflation target and raised the likelihood that the Fed would keep interest rates elevated for longer."

Pollak added that there are several reasons for persistent wage growth pressures, including an extremely tight labor market, especially for hourly roles; new pay transparency laws prompting many companies to raise the wages of existing employees so that they match the pay ranges being disclosed in job postings; and labor union activity.

"In response to strikes and threatened strikes, many employers are conceding and providing the wage increases workers are demanding, knowing that they will not be able to replace striking workers in a tight labor market," she said.


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