November jobs report shows labor market is flourishing
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November's jobs report shows the American labor market is still flourishing with strong employment and wage growth — alongside workers flooding into the labor force.
Why it matters: The penultimate payrolls release of 2023 shows that the economy skirted recession fears, underpinned by a strong labor market.
- Jobs growth is cooler than earlier this year, but it's still humming along — allowing more Americans to reap the benefits of still somewhat tight conditions.
What they're saying: The data "showed that across all key metrics — nonfarm payrolls, wages, the unemployment rate, the participation rate, and even the workweek — activity exceeded consensus expectations," says Nationwide chief economist Kathy Bostjancic, adding that it all should help "support consumer spending during the holidays."
What's new: The U.S. economy added 199,000 jobs last month — a solid number, though the prior two months were revised down by a combined 35,000. Growth is below the average monthly gain of 240,000 over the past year — a sign of cooling.
- The November figures were boosted by stronger employment in the auto sector, which increased by 30,000 — largely a result of the end of the United Auto Workers strike.
The intrigue: The most encouraging news of the report, however, came from the household survey that showed the unemployment rate falling to 3.7% — down 0.2 percentage points from October.
- That extends an historic 22-month stretch in which it has hovered below 4% — the longest since 1968-1969.
- The drop came even as more than half a million workers entered the labor force — a sign that more workers are still coming off the sidelines, helping ease labor market tightness.
- Meanwhile, the share of Americans with a job rose to 60.5%, the highest of the pandemic recovery.
Between the lines: The lingering tightness is evident in the strong rebound in average hourly earnings, which rose 0.4% in November, compared with the 0.2% increase in October. Over the past 12 months, average hourly earnings have jumped by 4%.
- That means that wage growth likely outran inflation last month — at least if estimates of November price rises are correct — meaning workers are notching real wage gains.
The bottom line: The jobs market keeps defying expectations of a rapid slowdown. Instead, it appears to be cooling in a way that — so far — appears to buoy hopes of a soft landing.
What it means for the Fed and markets
After several weeks in which economic data was flashing the "all-clear" sign, suggesting inflationary pressures were well in check and the economy slowing, the new jobs numbers point the other direction.
State of play: A combination of a tighter job market — as evidenced by the lower unemployment rate — and strong growth in average hourly earnings will get the attention of Federal Reserve officials who are wary of formally declaring an end to rate increases.
What's next: The Fed's policy committee meets Tuesday and Wednesday of next week, and is likely to leave its target interest rate unchanged. The open question is how it communicates the likelihood of further rate hikes next year, and how open the door appears to rate cuts.
- While the new jobs numbers probably aren't a game-changer on either front, they give ammunition to those who embrace a higher-rates-for-longer expectation.
- The numbers diminish the chances a near-term easing — seen as increasingly probable in financial markets, though dismissed by Fed Chair Jerome Powell in a recent speech — will materialize.
- Besides this morning's jobs numbers, the committee will also have November Consumer Price Index, due out Tuesday morning, in hand as they make their decision.
Financial markets reacted accordingly. The two-year U.S. Treasury yield, highly sensitive to expectations of Fed policy, was up a whopping 0.13 percentage points as of 10:50am ET to 4.71%.
