Hot US job market a challenge for Fed
Surging wages could support case for continuing with large interest-rate increases
published : 2 Dec 2022 at 21:34
writer: Bloomberg News
WASHINGTON: US employers added more jobs than forecast in November and wages surged by the most in nearly a year, pointing to enduring inflationary pressures that boost chances of higher interest rates from the Federal Reserve.
The report released on Friday morning troubled investors, who had come to believe that the US central bank was ready to ease the pace of rate hikes. Even Fed chairman Jerome Powell said recently that a smaller rate increase could come “as soon as December”, referring to the next meeting on Dec 13 and 14.
Nonfarm payrolls increased 263,000 in November after a gain of 284,000 in October, a Labor Department report showed. The unemployment rate held at 3.7% as workforce participation eased. But average hourly earnings rose twice as much as forecast after an upward revision to the prior month.
The median estimates in a Bloomberg survey of economists called for a 200,000 advance in jobs and for the unemployment rate to hold at 3.7%. US stock futures tumbled and Treasury yields surged following the report, as investors once more are anticipating a more aggressive stance from the Fed.
Job gains were concentrated in a few categories, led by growth in leisure and hospitality, healthcare and government. Meanwhile, employers in retail, transport and warehousing and temporary help services cut workers.
The better-than-expected employment increase underscores the enduring strength of the job market despite rising interest rates and concerns of a looming recession. The persistent mismatch between the supply and demand for workers continues to underpin wage growth and has led many economists to expect businesses will be more hesitant to lay off workers in a potential downturn.
That said, some sectors are beginning to show more notable signs of weakening. Many economists expect unemployment to rise next year — significantly in some cases — as tighter Fed policy risks pushing the US into recession.
Powell said earlier this week that a moderation in demand for labour is needed to bring the jobs market back into balance, and the central bank has only seen “tentative signs” of that so far. He also noted the importance wage growth — and the labour market more generally — will play in determining the path of inflation.
The jobs report showed average hourly earnings rose 0.6% in November, the biggest monthly advance since January, and were up 5.1% from a year earlier. Wages for production and nonsupervisory workers climbed 0.7% from the prior month, the most in almost a year. The pace of pay raises is inconsistent with the Fed’s 2% inflation target.
This is the last jobs report Fed officials will have in hand before their December policy meeting, where the central bank is expected to step down the pace of interest-rate hikes to a still-aggressive half percentage point. Inflation data over the past month has indicated that price pressures are slowly cooling, but remain very elevated.