Summary
The unemployment rate fell to 3.7% in November from 3.9% in October as employers added 199,000 jobs. With continued high demand for workers, average hourly wages rose 4% over the past 12 months, surpassing inflation. The labor market remains favorable for job seekers, but not to the same extent as last year. The slower unemployment rate, without a wage crisis, is what Federal Reserve officials aim to achieve through their campaign to raise interest rates to combat inflation.
The Labor Market Still Comfortable for Workers
The labor market may not be as hot as it once was, but it remains comfortable by historical standards for workers. Employers in the United States added 199,000 jobs in November, according to seasonally adjusted data released by the Bureau of Labor Statistics on Friday. This was an increase from the 150,000 jobs added in October, but less than half the average in 2022, when employers added 399,000 jobs in a month of normal growth amid strong demand for workers. Part of the job increase came from a rise of 30,000 jobs in the auto parts sector, as the United Auto Workers’ strike against automakers in Detroit came to an end. The unemployment rate declined to 3.7% from 3.9%, which is relatively low by historical standards, although it is above the 50-year low of 3.4% achieved in April.
Slowing Job Growth Without a Wage Crisis
Some parts of the report showed a labor market that has slowed compared to last year but has not collapsed. Job growth has slowed, but there is no major crisis of mass layoffs on the horizon. This is precisely what Federal Reserve officials have been trying to achieve through their campaign to raise interest rates to combat inflation. The decline in the unemployment rate came as a surprise to analysts, who had expected it to remain at 3.9%, according to economists surveyed by Dow Jones News and The Wall Street Journal.
Federal Reserve and Inflation Concerns
The Federal Reserve raised the benchmark interest rate to its highest level in 22 years and has kept it there. By raising borrowing costs on all types of loans taken by consumers and businesses, the Fed aims to slow down the economy. One of the Fed’s primary concerns has been the labor market – where they feared that competition for labor was driving up workers’ wages, leading to inflation.
Slowing Employment Without a Wage Crisis
Recent reports on the labor market have shown a slowdown in employment without the mass layoffs that resulted from previous instances when the Federal Reserve rapidly raised interest rates. The market remained strong, with workers continuing to add jobs. However, things have tilted slightly in favor of workers recently: in October, there were 1.5 job openings for every unemployed person, compared to two in March 2022.
Wage Increases Outpacing Inflation
One positive point for workers: usual hourly wages rose by 0.4% in November compared to October, representing a 4% year-over-year increase – down from the annual increase of 4.1% in October, but crucially, larger than the annual inflation rate of 3.2%, according to the Consumer Price Index. In other words, wage increases continued to outpace price increases, meaning workers gained greater purchasing power.
Challenges for the Federal Reserve
Higher wages may be concerning for officials on the Federal Open Market Committee, who will meet next week to decide whether to raise interest rates again. However, the data released on Friday did not significantly affect market participants’ beliefs that the Federal Reserve would maintain its steady rate. Markets priced in only a 1.6% chance of a rate hike next week, down from 0% on Thursday, according to the CME Group’s FedWatch Tool, which forecasts rate increases based on futures trading data for federal funds.
Comment
Experts
“Today’s November jobs report showed that there is some remaining activity in the job market with wage growth accelerating and the unemployment rate falling,” wrote Ali Jafari, an economist at CIBC, in his comment. “Today’s report will certainly spark some interest in the Federal Open Market Committee and reminds us that the job market is still tight. However, with persistently declining inflation as a challenge, the Federal Reserve will continue to remain patient.”
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