The US labor market shrugs off recession fears; keeps the Fed on a tight leash

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

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

Tightness and strength in the labor market keep the Fed on its monetary tightening path at least through the first half of 2023, and could raise the key rate to a higher level where it could stay for some time. It also underlines the economy’s resilience heading into what is expected to be a tough year.

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

Nonfarm payrolls increased by 263,000 jobs last month. Data for October was revised higher to show that payrolls rose 284,000 instead of 261,000 as previously reported. Monthly job growth of 100,000 is needed to keep pace with labor force growth.

Economists polled by Reuters had predicted payrolls would rise by 200,000. Estimates ranged from 133,000 to 270,000. Employment growth has averaged 392,000 per month this year compared with 562,000 in 2021.

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

Economists say these companies are right-sized after over-hiring during the COVID-19 pandemic, noting that small firms are still desperate for workers.

There were 10.3 million vacancies at the end of October, with 1.7 vacancies for every unemployed person, many of them in the leisure and catering industry as well as the health and social care industry.

The increase in employment last month was led by the leisure and hospitality sector, which added 88,000 jobs, most of them in restaurants and bars. Employment in leisure and hospitality is still down by 980,000 from the level before the pandemic.

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

But retail employment fell by 30,000 jobs, with most of the losses in general merchandise stores. Wages in transport and storage fell by 15,000 jobs. Temporary help jobs, a segment normally considered a harbinger of future employment, fell by 17,200.

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

Fed chief Jerome Powell said on Wednesday that the US central bank could slow the pace of interest rate increases “as soon as December”. The Fed has raised interest rates by 375 basis points this year from near zero to a range of 3.75%-4.00% in the fastest rate hike since the 1980s.

Politicians meet on 13 and 14 December. Attention now shifts to November’s consumer price data due on December 13.

Stocks on Wall Street fell. The dollar rose against a basket of currencies. US Treasury bond prices were lower.

WAGES ARE ACCELERATING

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

The broad wage increases suggest that the moderation in inflation, evident in the October data, will be gradual. Economists said this also raised concerns about a wage-price spiral that could keep service prices up outside the shelter component. Fed officials have shied away from calling a price-wage spiral.

“The broad-based nature of the increase and its consistency with other wage data lead us to believe that around 5% average hourly wage growth is not an anomaly,” said Andrew Hollenhorst, chief U.S. economist at Citigroup in New York.

Strong wage growth is helping to drive consumer spending, which increased in October, leading economists to believe that an expected recession next year will be short and shallow. But there are some signs of weakness in the labor market.

Household employment fell by 138,000 jobs, the second monthly decline in a row. Although household employment tends to be volatile as it is drawn from a smaller sample compared to non-farm payrolls, economists said the divergence between the two measures was important to watch.

“The household survey may be better at capturing turning points in the labor market than the wage survey, since the wage survey is not able to capture the activity of opening and closing businesses, while the household survey can,” said Sophia Koropeckyj, senior economist at Moody’s Analytics in West Chester, Pennsylvania. .

However, others argued that non-farm payrolls were a better gauge and expected household employment to converge with payrolls.

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

The participation rate for Americans 55 and older fell, possibly reflecting retirements. The employment 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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