FILE – People walk under the sign of the In-N-Out Burger restaurant in San Francisco, Thursday, Aug. 25, 2022. Employers in the country remained active hiring in November despite high inflation and slow economic growth. Most of the growth came from education and healthcare, a category largely made up of restaurants, hotels and entertainment companies. (AP Photo/Jeff Chiu, File)
WASHINGTON (AP) — The Federal Reserve has been raising interest rates for nearly nine months in an attempt to slow the U.S. job market and keep inflation in check.
For just as long, the job market hasn’t seemed to get the point.
The government’s employment report for November on Friday was no exception. Employers added 263,000 jobs — a huge increase that far exceeded economists’ expectations. Wages have also risen strongly, adding to inflationary pressures that the Fed has struggled to contain.
The unemployment rate held at 3.7%, just above a half-century low of 3.5%.
Friday’s hiring data left economists scratching their heads about the resilience of the job market and many employers’ continued need for more workers.
“The Fed is tightening monetary policy, but someone forgot to tell the labor market,” said Brian Coulton, chief economist at Fitch Ratings.
The Fed’s inflation challenge began two years ago with a strong recovery from the pandemic recession, which caused severe shortages of commodities and sent prices soaring. After months of falsely assuming that high inflation would prove short-lived, the Fed finally started raising its key short-term interest rate in March.
Since then, its rise has been repetitive and aggressive. The Fed has raised its benchmark interest rate six times, including four back-to-back increases of three-quarter basis points – well above the usual quarter-point hikes. Later this month, it is expected to raise its key interest rate by another half basis point.
Because the Fed’s rate affects borrowing rates across the economy, its rise makes borrowing more expensive for consumers and businesses. The idea is that individuals and companies will borrow and spend less, while employers will slow down their hiring.
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But the economy — and the job market in particular — has proven surprisingly durable in the face of the Fed’s disinflationary campaign, a fact underscored by Friday’s strong jobs data.
The central bank aims to achieve an annual inflation rate of 2%. It still has a long way to go, to say the least: The latest inflation report showed consumer prices rose 7.7% from a year ago.
Here are five takeaways from the November jobs report:
too hot for the fed
The economy added a record 6.7 million jobs last year and averaged 457,000 per month between January and July this year. Since then, hiring has cooled, averaging 277,000 per month from August to November. However, it remains too hot for the Fed’s inflation fighters and has consistently exceeded forecasters’ expectations.
With nearly two job openings for every unemployed American, companies are struggling to find workers and keep current ones. A tight job market tends to put upward pressure on wages and fuel inflation.
“This is another solid report of how difficult it is for the Fed to get inflation back to target,” economists Thomas Simons and Aneta Markowska at investment banking firm Jefferies wrote in a research note Friday.
Average hourly earnings rose 0.6% from October to November, the strongest monthly gain since January. The average wage increase over the past 12 months exceeded expectations by 5.1%,
“We’ve been hoping to see significant weakness,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics.
Hourly wage gains were particularly strong in November for workers in retail, transportation and warehousing, and “information” industries, which include some skilled jobs.
“Wage growth is likely to remain elevated until we see significant normalization in labor demand,” said Thomas Feltmate, senior economist at TD Economics.
Help Needed: Restaurants and Bars
Restaurants and bars added 62,000 jobs last month. The healthcare sector recorded a net new hire of 45,000 in November. The industry is adding 47,000 jobs a month this year, up from an average of 9,000 a month in 2021.
Factories added 14,000 jobs in November. That’s despite an index released by the Institute for Supply Management showing U.S. manufacturing activity fell last month for the first time since May 2020, when the economy was reeling from the COVID-10 outbreak.
The economy also added 20,000 construction workers last month. But in a sign that higher interest rates are squeezing the housing market, homebuilding firms actually lost 2,600 jobs in November.
The number of people who had a job or were looking for one (the total labor force) fell by 186,000 in November. It was the third consecutive month of decline.
The figure is still slightly below where it was in February 2020, just before COVID hit the U.S. economy. The share of the adult population in the labor force — the participation rate — hit 62.1% last month, well below the pre-pandemic level of 63.4%.
The shortage of available workers is caused by a combination of early retirement, reduced immigration, COVID-19 deaths and a shortage of affordable child care. Shortages represent a setback in the fight against inflation: If employers have more workers to choose from, they won’t be under pressure to drive up wages, fueling inflationary pressures.
Two Investigations, Two Stories
Friday’s report sent some mixed signals about U.S. employment levels.
The Labor Department’s survey of businesses showed an overall increase of 263,000 jobs. But the department also surveys households, and they tell a different story: Those who said they had a job fell by 138,000 in November after falling by 328,000 in October.
The survey of businesses, called the Business Survey, tracks the number of new jobs created across the economy. A separate survey of households is used to calculate the unemployment rate.
The two surveys sometimes tell different stories, as they did in October and November, though that difference will level out over time.
For its compilation survey, the department primarily asks large companies and government agencies how many people they have on their payrolls.
For household surveys, it asks households whether adults living there are employed. Those who are not working but are looking for work are considered unemployed. Those who are out of work but not looking for work are not counted as unemployed.
Unlike business surveys, household surveys count farm workers, the self-employed, and those working for new firms. It also better attracts small business hires.
But the results of household surveys may be less accurate. The government surveyed only 60,000 households. In comparison, it conducted an institutional survey of 131,000 businesses and government agencies.
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