The US job market ignores recession fears. The Fed keeps on tightening

WASHINGTON (Reuters) – U.S. employers hired more workers than expected in November and raised wages, ignoring growing recession fears, but that probably won’t stop the Federal Reserve from slowing the pace of interest rate hikes starting this month. .

Despite the strong job growth, some details of Friday’s closely watched employment report from the Labor Department were slightly weak, which economists said could dampen upcoming labor market weakness. Domestic workers decreased for the second month in a row. About 186,000 people left the workforce, keeping the unemployment rate unchanged at 3.7%.

The tightness and strength of the labor market keeps the Fed on its tightening path at least through the first half of 2023, and could raise its policy rate to a higher level where it can stay for some time. It also stresses that the resilience of the economy heading towards it is expected to be a difficult year.

“The November labor market report was clearly bad news for the Fed’s war on inflation,” said Jan Groene, senior US macro analyst at TD Securities in New York. “The Fed has no other choice but to remain in tightening mode for the foreseeable future, with an increase of 50 basis points in December and February.”

Nonfarm payrolls increased by 263,000 jobs last month. October data was revised higher to show jobs increased by 284,000 instead of 261,000 previously reported. Job growth of 100,000 per month is needed to keep up with the growth in the workforce.

Economists polled by Reuters had expected a salary increase of 200,000. Estimates range from 133,000 to 270,000. Employment growth has averaged 392,000 per month this year, compared to 562,000 in 2021.

Employment remains strong despite announcements of thousands of job cuts by tech companies, including Twitter and Amazon (AMZN.O) and dead (META.O)the mother of Facebook.

Economists say these companies are doing right after over-hiring during the COVID-19 pandemic, noting that small businesses still desperately need workers.

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

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

45,000 healthcare jobs were added, while government salaries increased 42,000. Employment in the construction sector increased by 20,000 jobs despite the housing market turbulence, while manufacturing added 14,000 jobs.

But employment in retail fell by 30,000 jobs, with most of the losses occurring in general merchandise stores. Transportation and warehousing payroll decreased by 15,000 jobs. Temporary help jobs, a segment usually considered a harbinger of future employment, fell by 17,200.

“The job market may experience some bumps in the road next year, but it’s headed into 2023,” said Nick Pinker, Head of Economic Research at Indeed Hiring Lab.

Federal Reserve Chairman Jerome Powell said on Wednesday that the US central bank may lower the pace of interest rate hikes “as early as December.” The Fed raised its policy rate by 375 basis points this year from near zero to a range of 3.75%-4.00% in the fastest rate hike cycle since the 1980s.

Policymakers meet on December 13th and 14th. Attention now turns to consumer price data for November, which is due on December 13th.

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

wage acceleration

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

Broad wage gains suggest that the moderation in inflation, as seen in the October data, will be gradual. Economists said this also raised concerns about a wage-price spiral that could keep prices for services outside of the shelter component high. Fed officials shied away from describing the wage-price spiral.

“The broad-based nature of the increase and its consistency with other wage data makes us think that about 5% average hourly earnings growth is not an aberration,” said Andrew Hollenhorst, chief US economist at Citigroup in New York.

Strong wage gains are helping to propel consumer spending, which rose in October, leading economists to believe the expected recession next year will be short and shallow. But there are some emerging signs of weakness in the labor market.

And domestic workers decreased by 138,000 jobs, which is the second consecutive monthly decline. Although household employment tends to be more volatile because it is drawn from a smaller sample compared to nonfarm payrolls, economists said the difference between these two measures was important to watch.

said Sofia Korubekej, chief economist at Moody’s Analytics in West Chester, Pennsylvania.

Others, however, argued that non-farm payrolls were a better measure and predicted that domestic workers would converge with payrolls.

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

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

(Reporting by Lucia Motecani) Editing by Chizu Nomiyama and Andrea Ricci

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