The U.S. economy added more jobs than expected in November, indicating that demand for new workers remains strong despite the Federal Reserve’s efforts to cool the economy.
Nonfarm payrolls rose by 263,000 last month, compared with an expected 200,000, according to data released by the Bureau of Labor Statistics. The numbers were a step down from an upwardly revised 284,000 jump recorded in October and a 269,000 increase in September.
Despite these gains, the unemployment rate remained steady at 3.7 percent.
The US dollar index rose 0.8 percent on the release of the data, on expectations that the figures would increase pressure for the Fed to keep raising interest rates. The blue-chip S&P 500 fell 1 percent and U.S. Treasuries sold off sharply, further boosting gains. The two-year Treasury yield, moving on interest rate expectations, rose 0.11 percentage point to 4.37 percent at one point.
“The labor market right now is both a blessing and a curse,” said Simona Mocuta, chief economist at State Street Global Advisors. “Obviously you don’t want really bad things to happen in the labor market, so it’s good to see job creation continuing. On the other hand, it complicates the Fed’s work.”
The US central bank is still trying to dampen economic activity by rapidly increasing borrowing costs to tame inflation, which is still at multi-decade highs.
Consumer demand has already started to decline, the housing sector has weakened and the technology sector has been hit by a wave of job cuts. However, despite the Fed’s benchmark policy rate currently hovering near 4 percent, the broader economy has shown surprising resilience.
Although the central bank is aiming for a higher than expected interest rate next year, it has indicated that it will move to a half-point increase in December, with a series of 0.75 percentage point increases. Many officials indicated that the benchmark policy rate could eventually reach 5 percent.
In remarks this week, Chairman Jay Powell said the need for higher rates stems from the Fed seeing “only early signs of moderation in labor demand.” Although the number of vacancies has fallen from its peak, it remains historically high.
Fed officials are concerned about wage growth and its impact on price pressures, given that inflation has far exceeded what is needed to return to the Fed’s 2 percent target.
In November, average hourly earnings rose another 0.6 percent from the previous period and rose 5.1 percent year-over-year. Mocuta said the wage data was the “most problematic” aspect of the latest report and said the Fed’s rate hikes will continue for some time.
Powell noted this week that monthly job growth also remained very high, citing estimates that suggested the pace would need to be 100,000 a month to keep pace with population growth. So far this year, the U.S. economy has added an average of 392,000 jobs per month, compared with 562,000 per month in 2021.
Many sectors are suffering from labor shortages and companies are raising wages as they try to attract new workers. In November, the so-called labor force participation rate, which tracks the share of workers working or looking for work, remained below the pre-pandemic level of 62.1 percent. Stalling the labor supply is the flow of early retirements and slowing immigration.
The leisure and hospitality sector was the biggest gainer in November, adding 88,000 jobs. However, the industry as a whole has yet to recover all of the jobs lost during the pandemic. Employment in health care, local government, and other service sectors also grew at a faster rate, while manufacturing and construction saw larger declines.
The transportation and warehousing sector reported losses, as did retail sales.
Cleveland Fed President Loretta Mester recently told the Financial Times that the shrinking labor supply will likely mean the central bank will have to do more to reduce demand for new hires, suggesting job losses are on the horizon.
Economists expect the unemployment rate to top 5 percent next year as the Fed keeps growth under control.
Additional reporting by Kate Duguid in New York