US labor market shrugs off recession fears; keeps the Fed on a tightening path

WASHINGTON, Dec 2 (Reuters) – U.S. employers hired more workers than expected in November and raised wages, ignoring growing fears of a recession, but that is unlikely to stop the Federal Reserve from slowing the pace of its interest rate hikes starting this month. .

Despite the strong job growth, some details in the Labor Department’s closely watched jobs report on Friday were a bit weak, which economists said could signal upcoming weakness in the labor market. Household employment fell for a second consecutive month. About 186,000 people left the labor force, keeping the unemployment rate unchanged at 3.7%.

The tightening and strength of the labor market keeps the Fed on its monetary policy tightening path at least until the first half of 2023, and could raise its key rate to a higher level where it could stay for a while. It also underscores the resilience of the economy heading into what is expected to be a difficult year.

“November’s labor market report was clearly bad news for the Fed’s war on inflation,” said Jan Groen, chief U.S. macroeconomic strategist at TD Securities in New York. “The Fed has no choice but to stay in tightening mode for the foreseeable future, with 50 basis point hikes in December and February.”

Non-farm payrolls increased by 263,000 jobs last month. Data for October has been revised upwards to show payrolls increased by 284,000 instead of 261,000 as previously reported. Monthly employment growth of 100,000 is needed to keep pace with labor force growth.

Economists polled by Reuters had forecast payrolls to rise by 200,000. Estimates ranged from 133,000 to 270,000. Job growth has averaged 392,000 a month this year, up from 562,000 in 2021 .

Hiring remains strong despite announcements of thousands of job cuts by tech companies including Twitter, Amazon (AMZN.O) and Meta (META.O), Facebook’s parent company.

Economists say these companies are downsizing after overhiring during the COVID-19 pandemic, noting that small businesses are still in desperate need of workers.

There were 10.3 million job openings at the end of October, with 1.7 openings for every unemployed person, many of them in the leisure and hospitality sectors as well as healthcare and social assistance.

Job gains last month were led by the leisure and hospitality sector, which added 88,000 jobs, most in restaurants and bars. Leisure and hospitality employment remains down 980,000 from its pre-pandemic level.

There were 45,000 jobs added in health care, while government payrolls increased by 42,000. Construction employment increased by 20,000 jobs despite the turmoil in the housing market, while that manufacturing added 14,000 jobs.

But retail employment fell by 30,000 jobs, with most of the losses in general merchandise stores. The transportation and warehousing payroll fell by 15,000 jobs. Temporary help jobs, a segment normally seen as a harbinger of future hiring, fell by 17,200.

“The labor market may encounter some bumps in the road next year, but it’s cruising into 2023,” said Nick Bunker, head of economics research at the Indeed Hiring Lab.

Fed Chairman Jerome Powell said on Wednesday that the U.S. central bank could reduce the pace of its rate hikes “as early as December.” The Fed raised its key rate by 375 basis points this year, from near zero to a range of 3.75% to 4.00% in the fastest rate hike cycle since the 1980s.

Policy makers meet on December 13 and 14. Attention now turns to the November consumer price data, due on December 13.

Wall Street stocks fell. The dollar appreciated against a basket of currencies. US Treasury prices were lower.

WAGES ACCELERATE

With the labor market still tight, average hourly earnings rose 0.6% after rising 0.5% in October. This brought the annual wage increase to 5.1%, from 4.9% in October. Wage growth peaked at 5.6% in March.

The large wage gains suggest that the moderation in inflation, evident in the October data, will be gradual. Economists said it also raised concerns about a price-wage spiral that could keep service prices rising outside the housing component. Fed officials have been reluctant to call it a price-wage spiral.

“The widespread nature of the increase and its consistency with other wage data suggests to us that growth of around 5% in average hourly earnings is not an aberration,” said Andrew Hollenhorst, economist in American chef at Citigroup in New York.

Strong wage gains are helping to boost consumer spending, which surged in October, leading economists to believe a recession forecast next year would be short and shallow. But some signs of weakness are appearing in the labor market.

Household employment fell by 138,000 jobs, the second consecutive monthly decline. Although household employment tends to be volatile because it’s drawn from a smaller sample compared to nonfarm payrolls, economists said the discrepancy between these two measures is important to watch.

“The household survey can capture labor market shifts better than the wage survey, because the wage survey is unable to adequately capture activity in businesses that are opening and close while the household survey can,” said Sophia Koropeckyj, senior economist at Moody’s Analytics in West Chester, Pennsylvania.

Others, however, argued that the non-farm payroll was a better indicator and expected household employment to converge with the payroll.

The participation rate, or the proportion of working-age Americans who have a job or are looking for one, slipped to 62.1% from 62.2% in October. Part of the decline in employment and household participation was likely due to illness, with 1.6million people saying they were off work because they were sick, up 265,000 from to October.

The participation rate of Americans aged 55 and older has fallen, possibly reflecting retirements. The employment-to-population ratio fell to 59.9% from 60.0% in October.

Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Andrea Ricci

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