Job growth slowed in November, but will still show strength despite the cuts

Job growth was expected to slow in November, remaining strong even in the face of layoffs and job freezes at large companies.

The economy is expected to add 200,000 jobs, down from 261,000 in October, according to Dow Jones. Economists had forecast the unemployment rate holding steady at 3.7% and average wage growth slowing to 0.3% for the month from 0.4% in October.

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The monthly employment report is due at 8:30 a.m. on Friday and is in focus as the Federal Reserve worries that a hot labor market and rising wages are fueling inflation. The FED is expected to raise interest rates by half a percentage point for the seventh time at its next meeting on December 14.

Economists expect the Fed’s tighter monetary policy to eventually result in negative monthly payroll numbers, but not yet.

“There could be more negative surprises for the November report,” said Diane Swonk, chief economist at KPMG. He said the number of workers suffering from illness may be a factor and that there have been more announcements of hiring freezes.

Retail is usually a bright spot in November, but Swonk said there are signs that the industry isn’t growing as much as it might normally be this holiday season.

“On a seasonally adjusted basis, there will be fewer seasonal hires for online retail and some large retailers and discounters who are worried about their margins during the holiday season,” Swonk said. “It’s the same in the shipping industry.”

Technical labor weakness

Companies like Facebook parent Meta platforms and HP lay off workers and others alphabet, they slow or freeze hiring. Although the pace of these announcements will pick up as we approach the end of the year, economists say they have yet to have a significant impact on jobs data.

“Weakened demand in the U.S. economy continues to shift some of these workers to other areas of the economy,” said David Page, head of macroeconomic research at AXA Investment Managers. “As a result, overall employment growth has been solid. Retail should be good, but I think there’s a big question mark about how retail will perform after the holidays.”

Tom Gimbel, founder of recruiting firm LaSalle Networks, said in an annual survey of 300 hiring managers that 84% expected to add workers in 2023, but not that many. “Consumer packaged goods, traditional manufacturing, professional services firms continue to hire. IT continues to lead, and we see accounting and finance above 2021 numbers. Sales hiring is also up a lot,” he said.

But big tech and venture capital-backed firms aren’t hiring or downsizing as much, he added.

“You have two areas, the big tech companies and the bad tech companies. The tech middle lane is healthy,” Gimbel said.

Michael Gapen, chief U.S. economist at Bank of America, forecast that 225,000 jobs were added in November, above consensus.

“There should be a directional slowdown, but we expect pretty good employment numbers,” he said. “What I’ll be looking for are signs that interest rate-sensitive sectors are starting to shed some jobs.”

Gapen said he will monitor construction to see if there are job losses in that region, as well as other sectors that could be hurt by a slowdown in housing.

The Federal Reserve raised the Fed’s target interest rate to 4% from 3.75%, and economists expect the Fed to reach around 5% before stopping in the first part of 2023. Economists say the Fed should raise that rate by half a percentage point. Even if the November jobs report was stronger than expected.

If wages don’t fall below the 260,000-month pace, “the Fed will have to tighten more than the market expects over the next few months,” Page said. He said the November data could influence the path of further tightening if it deviates too far from the line in either direction.

Fed Chairman Jerome Powell said in a key speech on the labor market on Wednesday that the economy needs to create only 100,000 jobs a month to keep up with population growth.

“Currently, the unemployment rate is 3.7 percent, near a 50-year low, and job openings outnumber available workers by nearly 4 million — that’s about 1.7 jobs for every person looking for work,” Powell said.

The Fed chairman also discussed the structural shortage of workers during the pandemic, from factors such as pensions to sharply reduced immigration. He also noted that the rate of growth of jobs along with the economy dropped from 450,000 per month in the first 7 months of this year to about 290,000 in the last three months.

“Powell has given us an exciting helm,” said AXA’s Page. “The Fed needs to get it below 100,000…Anything above that and you’re adding to the tightness. Anything below that, and you’re easing the tightness.”

Page expects the Fed’s rate hikes to weigh on the economy and slow the labor market, predicting negative wage numbers and a “modest” recession in the first half of next year.

Swonk also expects wages to decline over the next few months, and the November report should show some signs of a slowdown.

“It’s cold and that’s good, but it still hasn’t adjusted. There are still 1.7 jobs open for every job seeker,” Swonk said.