U.S. Job Growth Holds Up as Economy Gradually Cools

The U.S. economy continued to pump out jobs in November, suggesting there is still juice left in a labor market that has been slowing almost imperceptibly since last year’s pandemic rebound.

Employers added 199,000 jobs last month, the Labor Department reported Friday, while the unemployment rate dropped to 3.7 percent, from 3.9 percent. The increase in employment includes tens of thousands of autoworkers and actors who returned to their jobs after strikes, and others in related businesses that had been stalled by the walkouts, meaning underlying job growth is slightly weaker.

Even so, the report signals that the economy remains far from recession territory despite a year and a half of interest rate increases that have weighed on consumer spending and business investment. Reinforcing the picture of energetic labor demand, wages jumped 0.4 percent over the month, more than expected, and the workweek lengthened slightly.

Most analysts have been surprised by the durability of the recovery, which owes a lot to the cash that consumers accumulated over the past few years of federal stimulus and forced savings. That has powered service-industry jobs even in the face of rising costs and the resumption of mandatory student debt payments.

“That’s the definition of a soft landing: It’s slowing slowly, which is what you want,” said Martin Holdrich, a senior economist with Woods & Poole Economics. He noted, however, that given strong productivity growth, the enduring tightness of the labor market needn’t prompt the Federal Reserve to continue increasing interest rates.

“These numbers do not indicate an overheated economy and shortages that will drive up inflation,” Mr. Holdrich said.

The annual inflation rate has recently fallen to 3 percent, less than half what it was when the Fed’s interest rate increases began, and significantly lower than the current pace of wage growth. Americans appear to be noticing: Consumer confidence jumped sharply in December, according to data released Friday by the University of Michigan, and respondents’ expectations of future inflation dropped.

The Federal Reserve’s rate-setting committee meets next week and is widely expected to continue its pause, with market speculation shifting to when in 2024 it will cut rates, and by how much. The major stock indexes rose after the report, as did bond yields.

November’s crop of jobs was essentially in line with the last few months, accounting for strike activity, though a step down from the 240,000 jobs added per month on average over the year ended in October. During the November survey, there were still about 10,000 workers still on strike at workplaces including casinos and hospitals.

Employment growth has narrowed, however, with most gains coming from service industries and the public sector. In November, health care added 77,000 jobs and government added 49,000 — both employers that are less tethered to the underlying strength of the economy.

For businesses that depend on selling physical goods, it’s been a different story. Manufacturers added back jobs lost during the auto strikes but have otherwise been stagnant since the beginning of the year. The retail industry shed 38,000 positions on a seasonally adjusted basis, reflecting what appears to be the weakest holiday hiring season since 2013.

“Why we’ve seen labor demand be more resilient than we maybe thought it was going to be six months ago is that structural strength in government and health care,” said Olivia Cross, who covers North America at the research firm Capital Economics. “The more cyclical sectors where we have seen weakening much more substantially, I think we expect those to continue to weaken.”

Temporary help services, often considered a bellwether for labor demand, dropped 14,000 jobs in November and have lost 177,000 over the past year, an indication that employers can handle customer requests with their regular staff.

That’s certainly true for Luke Barber. He runs an industrial packaging company in Bangor, Mich., and most of his customers are suppliers to the auto industry that need to store and ship their products without damage. Mr. Barber got a surge of orders as those manufacturers built up their inventories during the strikes by autoworkers in September and October, which meant scheduling overtime for his 70 employees as well as bringing on 30 temporary workers.

Now, with stockrooms filled, those contracts have ended. Mr. Barber let go of his temps and is just trying to keep his staff busy. He doesn’t foresee laying anyone off, but he is investing in automation to make his labor spending go further; the pandemic period had made it difficult to maintain a full roster, and he said he had increased wages 25 to 30 percent since 2019.

“They’re saying that inflation is trending down right now, but we’re not going to go back and take back the raises we just issued,” Mr. Barber said. In the coming year, he sees people buying fewer cars as auto suppliers invest more in research and development to switch their supply chains to battery electric vehicles.

“We’re entering this cycle on the auto side with lower volumes, and you don’t have consumer demand there, and you have high cost of credit,” Mr. Barber said. “So I anticipate a bit of constriction.”

The trajectory for most of 2023 has pointed toward the sort of steady, painless easing that the Fed is seeking with its interest rate policy: A record number of job openings has receded without a concerning rise in the unemployment rate.

Some industries that surged during the pandemic have pulled back, but others that were still thirsty for labor soaked up excess workers, helping to stave off a rise in joblessness. Entertainment, hotels and restaurants added 40,000 jobs in November but remain 158,000 jobs from the industry’s peak in February 2020, indicating there’s still room to grow.

“If you have a sector like wholesale or retail trade start to shed workers, they can very easily transition into something like leisure and hospitality,” said Michael Reid, a U.S. economist at RBC Capital Markets. “If those sectors start to see a pullback in spending, we still do see strength in health care and social assistance.”

Although the unemployment rate has crept up from a historic low earlier in the year, much of that has been fueled by people starting to look for work. The labor force has grown by 1.16 million people since July.

The share of people over 55 who are in the labor force — working or looking for work — dropped in 2020 and hasn’t recovered, but those between the ages of 25 and 54 have rushed back. It has become increasingly apparent that women in that age bracket, who achieved a record level of participation this year, have benefited from the broader availability of remote work. If the availability of child care and elder care continues to recover — those workforces still haven’t reached their prepandemic levels — even more parents may opt to take jobs as well.

That influx of workers, which includes a recovery in immigration flows, has also taken the air out of wage increases, and made it more difficult for people on the margins of the labor market to find stable jobs with decent pay.

Joshua Rosenthal, 33, went to trade school for massage therapy and lives in Erie, Pa. But after a couple of occupational injuries, including a herniated disc in his lower back from working at a trampoline park, he is unable to do anything very physical. So he looked for work from July to October, applying for some 200 jobs before he landed a position as a technician at a compounding pharmacy that now pays $16 an hour.

“People are paying, like, a little better when it comes to wages, but it’s still not reaching a livable wage, or what I would call thrivable; it’s more like a subsistence level,” said Mr. Rosenthal, who lives with his mother to save money. “I know they say people are hiring, but I don’t really believe it.”

Despite the stronger-for-longer performance of the labor market so far, most forecasters expect a continued weakening in job growth in early 2024 as consumers run through their savings, reducing spending, and the remaining pockets of labor shortage fill up.

But that won’t necessarily mean a difficult downturn: Three in four members surveyed by the National Association for Business Economics in November figured that the likelihood of a recession within the next year was less than 50 percent.