WASHINGTON – For nearly nine months, the Federal Reserve has relentlessly raised interest rates to try to slow the U.S. job market and bring inflation under control.
And for just as long, the job market hasn’t seemed to get the message.
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The November employment report the government issued Friday was no exception. Employers added 263,000 jobs — a substantial gain that was far above economists’ expectations. Wages rose robustly, too, further intensifying the inflationary pressures the Fed has been struggling to contain.
And the unemployment rate remained at 3.7%, barely above the half-century low of 3.5%.
Friday's hiring data left economists scratching their heads over the job market's resilience and the continuing need of many employers for more workers.
“The Fed is tightening monetary policy, but somebody forgot to tell the labor market,’’ said Brian Coulton, chief economist at Fitch Ratings.
The Fed's inflation challenge began after the economy roared back from the pandemic recession two years ago, causing vast shortages of goods and sending prices soaring. After assuming — falsely — for months that high inflation would prove short-lived, the Fed finally began raising its key short-term rate in March this year.
Since then, its rate hikes have been recurrent and aggressive. The Fed has raised its benchmark rate six times, including four straight increases of three-quarters of a point — far larger than the usual quarter-point hikes. Later this month, it's expected to raise its key rate by an additional half-point.
Because the Fed's rate affects borrowing rates across the economy, its hikes have had the effect of making loans much costlier for consumers and businesses. The idea is that individuals and companies would then cut back on borrowing and spending, and employers would slow their hiring.
But the economy — and especially the job market — have proved surprisingly durable in the face of the Fed’s anti-inflation campaign, a fact underscored by Friday’s strong jobs numbers.
The central bank's goal is to achieve 2% annual inflation. It has a long way to go, to say the least: The most recent inflation report showed consumer prices up 7.7% from a year earlier.
Here are five takeaways from the November jobs report:
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TOO HOT FOR THE FED
Last year, the economy added a record 6.7 million jobs, and it tacked on an average of 457,000 a month more from January through July this year. Since then, hiring has cooled, to a monthly average of 277,000 from August through November. Yet it's still running way too hot for the Fed’s inflation fighters and is consistently beating forecasters’ expectations.
With nearly two job openings for every unemployed American, companies are struggling to find workers and retain the ones they have. A tight job market tends to keep upward pressure on wages and to feed into inflation.
“This is another solid report that shows just how difficult it is going to be for the Fed to get inflation back to target,’’ economists Thomas Simons and Aneta Markowska of the investment banking firm Jefferies wrote in a research note Friday.
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RISING WAGES
Average hourly earnings rose 0.6% from October to November — the strongest month-to-month gain since January. And measured over the past 12 months, average pay was up a more-than-expected 5.1%,
“We had been hoping to see a clear softening,’’ said Ian Shepherdson, chief economist at Pantheon Macroeconomics.
Hourly pay gains were especially strong in November for workers in retail, transportation and warehousing and “information,’’ a category that includes some technology jobs.
“Wage growth is likely to continue to remain elevated until we see a meaningful normalization in labor demand,’’ said Thomas Feltmate, senior economist at TD Economics.
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HELP WANTED: RESTAURANTS AND BARS
Restaurants and bars added 62,000 jobs last month. The healthcare industry took on a net 45,000 new workers in November. That sector has been adding 47,000 jobs a month this year, up from an average of just 9,000 a month in 2021.
Factories added 14,000 jobs in November. That gain occurred even though an index issued by the Institute for Supply Management showed that U.S. manufacturing activity fell last month for the first time since May 2020, when the economy was reeling from the COVID-10 outbreak.
Last month, the economy also added 20,000 construction workers. But in a sign that higher interest rates are squeezing the housing market, the number of employees at homebuilding companies actually fell in November by 2,600.
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MISSING WORKERS
The number of people who either have a job or are looking for one — the total labor force — declined by 186,000 in November. It was the third straight monthly drop.
The figure remains slightly below where it stood in February 2020, just before COVID slammed into the U.S. economy. The proportion of the adult population in the labor force — the participation rate — amounted to 62.1% last month, well below the pre-pandemic 63.4%.
The shortfall in available workers has been caused by a combination of early retirements, reduced immigration, COVID-19 deaths and a shortage of affordable child care. The shortage represents a setback in the fight against inflation: If employers had more workers to choose from, they would be under less pressure to bid up wages and thereby contribute to inflation pressures.
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TWO SURVEYS, TWO STORIES
Friday’s report sent some mixed signals about the level of employment in the United States.
The Labor Department’s survey of businesses delivered the headline number of 263,000 added jobs. But the department also surveyed households, and they told a different story: The number of people who said they had a job fell by 138,000 in November after having dropped by 328,000 in October.
The survey of businesses, called the “establishment survey,” tracks how many jobs are added across the economy. The separate survey of households is used to calculate the unemployment rate.
The two surveys sometimes tell different tales, as they did in October and November, though the disparities tend to even out over time.
For its establishment survey, the department asks mostly large companies and government agencies how many people they had on their payrolls.
For its household survey, it asks households whether the adults living there have a job. Those who don’t have a job but are looking for one are counted as unemployed. Those who aren’t working but aren’t seeking work are not counted as unemployed.
Unlike the establishment survey, the household survey counts farm workers, the self-employed and people who work for new companies. It also does a better job of capturing small-business hiring.
But the results of the household survey are likely less precise. The government surveys just 60,000 households. By contrast, it surveys 131,000 businesses and government agencies for the establishment survey.