U.S. hiring stays strong, complicating inflation fight
Economy adds 263,000 jobs in November
• American employers kept hiring briskly in November despite high inflation and a slow-growing economy — a sign of resilience in the face of the Federal Reserve’s aggressive interest rate hikes.
The economy added 263,000 jobs, while the unemployment rate stayed at 3.7 per cent, still near a 53-year low, the Labor Department said Friday. November’s job growth dipped only slightly from October’s 284,000 gain.
All year, as inflation has surged and the Fed has imposed ever-higher borrowing rates, America’s labour market has defied skeptics, adding hundreds of thousands of jobs, month after month.
With not enough people available to fill jobs, businesses are having to offer higher pay to attract and keep workers. In November, average hourly pay jumped 5.1 per cent compared with a year ago, a robust increase that is welcome news for workers but one that makes the Fed’s efforts to curb inflation potentially more difficult. On a month-to-month basis, wages jumped 0.6 per cent in November, breaking a streak of smaller gains that had suggested that pay growth might be cooling.
The strength of the hiring and pay gains raised immediate concerns that the Fed may now have to keep interest rates high even longer than many had assumed. The stock market reacted with alarm, with the Dow Jones Industrial Average sinking nearly 200 points in mid-morning trading Friday.
“This will be a reminder to the Fed and to the markets that the job on inflation is not done,” said Blerina Uruci, chief U.S. economist at brokerage T. Rowe Price. “They really need wage pressures to be on a more sustained downward path. So that certainly calls for interest rates to remain higher for longer.”
The report painted a picture of a job market in which the supply of available workers is falling just when many companies are still desperate to hire to meet customer demand. The proportion of Americans who either have a job or are looking for one declined for a second straight month, to 62.1 per cent. Before the pandemic, that figure was 63.4 per cent; the drop since then translates into about 3 million people.
Since the pandemic, many older workers have taken early retirement. In addition, several hundred thousand working-age people have died from COVID-19. And many families have struggled to find or afford child care, leaving some adults unable to return to work.
This week, Fed Chair Jerome Powell stressed in a speech that jobs and wages were growing too fast for the central bank to quickly slow inflation. The Fed has jacked up its benchmark rate, from near zero in March to nearly 4 per cent, to try to wrestle inflation back toward its 2 per cent annual target.
In his speech, Powell noted that most supply chain problems have been remedied, thereby helping lower prices for such goods as furniture, cars and electronics. Gas prices are also falling, he said, and housing costs, a big driver of inflation, should drop next year.
Yet Powell pointed to prices in services like health care and restaurants as longer-term drivers of inflation. And rising wages are a key factor in raising those costs.
Nationally, there were some signs of weakness in Friday’s hiring figures: Retailers, transportation and warehousing companies all cut jobs. So did temporary staffing agencies. Temp employment, often seen as a leading indicator of hiring, has declined for three straight months.
As a result, more than half the job growth last month — 170,000 — came from just two large industries: Education and health care, and a category made up mostly of restaurants, hotels, and entertainment firms. Both sectors are still replacing workers who were lost during the pandemic. Most other industries have surpassed their pre-pandemic levels of employment.
Yet a category that includes technology workers actually added jobs, despite many recent high-profile layoff announcements from such tech companies as Amazon, Meta, Twitter and the real estate broker Redfin.
Some signs of modest cooling in the job market have emerged recently. They include a small decline in job postings and a drop in the number of people who are quitting jobs — trends that suggest some rising caution among workers.
Even so, steady hiring and rising paychecks in many industries have helped U.S. households drive the economy. In October, consumer spending rose at a healthy pace even after adjusting for inflation. Americans stepped up their purchases of cars, restaurant meals and other services.
After having contracted in the first six months of the year, the U.S. economy expanded at a brisk 2.9 per cent annual rate last quarter. In addition to strength from consumer spending, a spike in exports helped boost growth.
Though steady hiring and rising wages have fuelled their spending, Americans are also turning increasingly to credit cards to keep up with higher prices. Many are also digging into savings, a trend that cannot continue indefinitely.
Some signs of weakness have sparked concerns about a likely recession next year, in part because many fear that the Fed’s surging rate hikes will end up derailing the economy. Particularly in the technology, media and retail industries, a rising number of companies have made high-profile layoff announcements.
In addition to job cuts from tech behemoths, other firms are also announcing layoffs, including Doordash, Redfin, Best Buy and Gap.
In November, a measure of factory activity dropped to a level that suggested that the manufacturing sector is contracting for the first time since May 2020.