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U.S. Job Growth Remains Strong, Defying Fed’s Rate Strategy

Employers added 263,000 workers in November, even as some industries showed signs of a slowdown. Wage growth exceeded expectations.

America’s jobs engine kept churning in November, the Labor Department reported Friday, a show of continued demand for workers despite the Federal Reserve’s push to curb inflation, largely by tamping down hiring.

Employers added 263,000 jobs, even as a wave of layoffs in the tech industry made headlines. That was only a slight drop from the revised figure of 284,000 for October.

The unemployment rate was unchanged at 3.7 percent, while wages were 5.1 percent higher than a year earlier, a bigger rise than expected.

Those signs of strength perpetuate a strange duality: While a strong labor market may benefit workers in the short term, it could strengthen the Fed’s resolve to raise rates even further, which would increase the likelihood of a recession in 2023.

“It upsets some of the narrative going into the report, which was that things are slowing down,” said Neil Dutta, head of U.S. economics at Renaissance Macro. “The reason that this matters for everyone is that the Fed still sees the labor market as the mechanism by which they can solve the inflation problem.”

Despite steady employment growth, the impact of higher interest rates is already evident. Hiring in goods-producing sectors like manufacturing and residential construction — which are more sensitive to rising borrowing costs — has slowed substantially, and the number of hours worked fell, mainly because of those industries. But robust hiring in health care and hospitality, where wages have also grown most rapidly, powered continued gains.

Wages continue to increase, though still not at the pace of inflation

Year-over-year percentage change in earnings vs. inflation






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CONSUMER

PRICE INDEX

+7.7%

in October

+8%

+6

AVG. HOURLY

EARNINGS

+5.1%

in Nov.

+4

+2

2019

2020

2021

2022

CONSUMER

PRICE INDEX

+7.7%

in October

+8%

+6

AVG. HOURLY

EARNINGS

+5.1%

in Nov.

+4

+2

2019

2020

2021

2022


Data is seasonally adjusted.

Source: Bureau of Labor Statistics

By Ella Koeze

Although inflation has been propelled by a variety of factors including the Russian invasion of Ukraine and rapid shifts in demand, the latest data may trouble the Fed chair, Jerome H. Powell, who has focused on inflation in service industries, where wages make up a large share of costs.

“That could be enough to offset what should be a decline in goods pricing and inflation pressures,” said Andrew Patterson, a senior international economist at Vanguard. “It hints at a move in a direction that the Fed does really not want to see.”

In another red flag, despite the acceleration in wage increases, the number of people who either are working or want a job has continued to sink.

The overall labor force participation rate ticked down in November, to 62.1 percent. In February 2020, it stood at 63.4 percent. Some of that decline is due to retirements by older workers, but the share of people in the prime of their careers — 25 to 54 years old — fell to 82.4 percent, 0.6 percentage points below its prepandemic level.

Theories about the shortfall abound, including persistent complications from long-term Covid-19. Whatever the reason, the shrinking labor force makes the Fed’s job more difficult, since employers may raise prices to cover wage increases needed to attract workers.

Nevertheless, consumer spending has remained strong. As a result, many businesses have continued to expand, even if with less urgency than they did when the economy was roaring back from its deep freeze in 2020 and 2021.

“It feels to me like we’re not in a decline, just in a consolidation, kind of a flattening,” said Jon Guidi, the chief executive of HealthCare Recruiters International, whose clients include medical clinics, pharmaceutical companies and biotech firms. “I don’t get a strong negative indication on anything. It’s ‘Hey, Jon, we still need to hire, but maybe not in as much of a rush as we were a few months ago. Maybe we’ll be a little pickier.’”

Mr. Guidi’s industry, health care, has some of the highest job-opening rates in the economy as employers seek to win back workers who bore the brunt of dealing with Covid. More broadly, job postings and the share of workers quitting their jobs have been declining from record highs earlier in the year, but are still significantly elevated.

Initial claims for unemployment insurance have remained low, suggesting that even if business is falling off, employers are hesitant to shed workers whom they tried so hard to hire. Hotels and restaurants added 88,000 jobs in November, and still have nearly a million positions to go before returning to February 2020 levels.

Other indicators have signaled that a more serious contraction is underway.

The purchasing managers’ index for manufacturing, which measures how many manufacturers are expanding, turned negative for the first time since the pandemic. Manufacturers added 14,000 jobs in November, but that’s about half the rate of the average over the previous six months.

Retailing was among the few industries to lose jobs, as employers like Walmart announced lower-than-usual holiday hiring, although the volatility of the last few years has made that data more difficult to accurately assess. The transportation and warehousing industry has been shrinking since midsummer, as pandemic-era shopping binges have given way to more spending on travel and leisure, and dropped 15,000 positions in November.

Some independent truck drivers have left for other occupations, said Bob Costello, chief economist of the American Trucking Associations, but the overall number of trucking jobs has remained significantly above its 2019 baseline.

“If you’re a good driver, you don’t have a slew of accidents on your record and you can pass a drug test, there’s no reason for you to be unemployed unless you want to be,” Mr. Costello said. “Zero.”

The impact of interest rate increases is perhaps nowhere more apparent than in the layoffs at fast-growing companies in Silicon Valley, which had been fueled by abundant venture capital that for many years couldn’t find better returns in more traditional asset classes.

The outplacement firm Challenger, Gray & Christmas measured a quadrupling of layoffs last month from a year earlier, led by 53,000 pink slips at technology companies, the highest Challenger has measured since beginning to collect the data in 2000. Many of those workers will get snapped up by companies that have had a harder time finding talent than the name-brand employers.

For Deirdre Williams, it took only a month.

Ms. Williams had been working on a contract with the consulting firm PwC until August, when she was told that the assignment had been cut short, with no reason given. She had just bought a house in Massachusetts, and felt grateful for the state’s generous unemployment benefits. But by October, another contract came along, with a tech staffing company at about the pay she was making before.

“I’m pretty snippy about my rate,” said Ms. Williams, who is 60. She added that she keeps her résumé updated and still takes calls from recruiters. “I would jump. I’d love to work for a company that would contribute to my 401(k) — that would be a huge deal.”

The technology industry is a small slice of overall employment. But certain regions like San Francisco depend heavily on the high salaries of developers and engineers to support jobs for cooks, hairdressers, janitors and bus drivers.

“I think it’s a little premature to see downturns in other industries; tourism is still doing OK,” said Ted Egan, the chief economist for the City of San Francisco, noting that two-thirds of the city’s growth since 2010 has come directly or indirectly from tech. “But I think eventually we will see tech drag down the local economy.”

Despite what appears to be an economy that has gotten back to full employment, wide gaps remain in certain professions that took big hits during the pandemic and are critical in supporting the rest of the labor market. Relative to early 2020, there are 271,000 fewer people working in local government education, child care day services are down 84,000 and nursing homes and residential care facilities have lost 288,000.

Those industries still have difficulty hiring because of difficult working conditions, especially as opportunities abound in other sectors, said Kathryn Zickuhr, a senior labor market policy analyst at the left-leaning Washington Center for Equitable Growth. Although wages have risen, little has changed to make those caregiving jobs more attractive, such as paid family leave or lighter student and patient loads.

“You don’t want a labor market that’s a form of musical chairs,” Ms. Zickuhr said. “You don’t want people fleeing sectors that still have high demand and have staffing shortages because of these job-quality issues. These are persistent issues that we need to address, and we need to address them when the labor market is strong, and before you need it.”

Jeanna Smialek contributed reporting.

Source: Economy - nytimes.com


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