Job growth was significantly better than expected in November despite the Federal Reserve’s aggressive efforts to slow the labor market and tackle inflation.
Nonfarm payrolls increased 263,000 for the month while the unemployment rate was 3.7%, the Labor Department reported Friday. Economists surveyed by Dow Jones had been in search of a rise of 200,000 on the payrolls number and three.7% for the jobless rate.
The monthly gain was a slight decrease from October’s upwardly revised 284,000. A broader measure of unemployment that features discouraged employees and people holding part-time jobs for economic reasons edged lower to six.7%.
The numbers likely will do little to slow a Fed that has been raising rates of interest steadily this yr to bring down inflation still running near its highest level in greater than 40 years. The speed increases have brought the Fed’s benchmark overnight borrowing rate to a goal range of three.75%-4%.
In one other blow to the Fed’s anti-inflation efforts, average hourly earnings jumped 0.6% for the month, double the Dow Jones estimate. Wages were up 5.1% on a year-over-year basis, also well above the 4.6% expectation.
Futures tied to the Dow Jones Industrial Average plunged following the report, falling greater than 400 points as the recent jobs data could make the Fed much more aggressive.
“To have 263,000 jobs added even after policy rates have been raised by some [375] basis points is not any joke,” said Seema Shah, chief global strategist at Principal Asset Management. “The labor market is hot, hot, hot, heaping pressure on the Fed to proceed raising policy rates.”
Leisure and hospitality led the job gains, adding 88,000 positions.
Other sector gainers included health care (45,000), government (42,000) and other services, a category that features personal and laundry services and which showed a complete gain of 24,000. Social assistance saw an increase of 23,000, which the Labor Department said brings the sector back to where it was in February 2020 before the Covid pandemic.
Construction added 20,000 positions, while information was up 19,000 and manufacturing saw a gain of 14,000.
On the downside, retail establishments reported a lack of 30,000 positions heading into what is anticipated to be a busy holiday shopping season. Transportation and warehousing also saw a decline, down 15,000.
The numbers come because the Fed has raised rates half a dozen times this yr, including 4 consecutive 0.75 percentage point increases.
Despite the moves, job gains had been running strong this yr if a bit lower than the rapid pace of 2021. On monthly basis, payrolls have been up a median of 392,000 against 562,000 for 2021. Demand for labor continues to outstrip supply, with about 1.7 positions open for each available employee.
“The Fed is tightening monetary policy but someone forgot to inform the labor market,” said Fitch Rankings chief economist Brian Coulton. “The benefit of these numbers is that it shows the U.S. economy firmly got back to growth within the second half of the yr. But job expansion continuing at this speed will do nothing to ease the labor supply-demand imbalance that’s worrying the Fed.
Fed Chairman Jerome Powell earlier this week said the job gains are “far in excess of the pace needed to accommodate population growth over time” and said wage pressures are contributing to inflation.
“To be clear, strong wage growth is thing. But for wage growth to be sustainable, it must be consistent with 2 percent inflation,” he said during a speech Wednesday in Washington, D.C.
Markets expect the Fed to lift its benchmark rate of interest by 0.5 percentage point when it meets later this month. That is more likely to be followed by a number of more increases in 2023 before the central bank can pause to see how its policy moves are impacting the economy, in line with current market pricing and statements from several central bank officials.
Powell has stressed the importance of getting labor force participation back to its pre-pandemic level. Nevertheless, the November reports showed that participation fell one-tenth of a percentage point to 62.1%, tied for the bottom level of the yr because the labor force fell by 186,000 and is now barely below the February 2020 level.
