You just can’t keep a strong labor market down: Employers added 263,000 jobs despite Fed rate hikes

 U.S. employers added 263,000 jobs in November as hiring remained sturdy despite rising interest rates, high inflation, and mounting recession worries.

The unemployment rate held steady at 3.7%, the Labor Department said Friday.

Economists surveyed by Bloomberg estimate that 200,000 jobs were added last month.

Job growth generally has moderated from a pace of about 450,000 for most of the year to under 300,000 in recent months. High inflation and aggressive interest rate hikes by the Federal Reserve have hobbled rate-sensitive sectors such as housing and technology.

Tech giants Meta, Twitter, Amazon, DoorDash, and Lyft, among many others, have announced a total of more than 142,000 layoffs this year.

The Labor Department announced that in the month of November the U.S. added XX jobs as the unemployment rate fell to XX%
The Labor Department announced that in the month of November the U.S. added 263,000 jobs as the unemployment rate held steady at 3.7%.  

Stock futures dropped immediately following the report. Futures for the Dow Jones Industrial Average were down over 1%.

Overall, initial jobless claims, a reliable gauge of job cuts, rose modestly in November but remain historically low, averaging 221,000 a week, Goldman Sachs says. Pandemic-induced labor shortages have made companies reluctant to chop workers on concerns they won’t be able to replace them when the economy bounces back.

Still, a labor market that was blistering earlier this year is losing some steam. Most economists are forecasting a recession next year as the Fed continues to hike rates, leading some companies to leave positions vacant when employees leave and freeze hiring. There were 10.3 million job openings in October, down from 10.7 million the previous month.

Employment gains are also slowing because the nation in August completed its recovery of all 22 million jobs lost in the early days of the pandemic, says Ian Shepherdson, chief economist of Pantheon Macroeconomics.

Some industries are still catching up. Leisure and hospitality -- which includes restaurants, bars, and hotels -- remains 1.1 million jobs shy of its pre-COVID level and could continue to add workers at a solid clip as more Americans return to dining out and traveling, says Julia Pollak, chief economist of ZipRecruiter.

All told, Moody’s Analytics expects average monthly job growth to average about 76,000 in 2023, which would be the weakest showing in recent memory aside from the recessions of 2007-09 and 2020.

Job growth was much better than expected in November despite the Federal Reserve’s aggressive efforts to slow the labor market and tackle inflation.

Nonfarm payrolls increased 263,000 for the month while the unemployment rate was 3.7%, the Labor Department reported Friday. Economists surveyed by Dow Jones had been looking for an increase of 200,000 in the payrolls number and 3.7% in the jobless rate.

The monthly gain was a slight decrease from October’s upwardly revised 284,000. A broader measure of unemployment that includes discouraged workers and those holding part-time jobs for economic reasons edged lower to 6.7%.

The numbers likely will do little to slow a Fed that has been raising interest rates steadily this year to bring down inflation still running near its highest level in more than 40 years. The rate increases have brought the Fed’s benchmark overnight borrowing rate to a target range of 3.75%-4%.

In another blow to the Fed’s anti-inflation efforts, average hourly earnings jumped 0.6% for the month, double the Dow Jones estimate. Wages were up 5.1% on a year-over-year basis, also well above the 4.6% expectation.

Futures tied to the Dow Jones Industrial Average plunged following the report, falling more than 400 points as the hot jobs data could make the Fed even more aggressive.

“To have 263,000 jobs added even after policy rates have been raised by some [375] basis points is no joke,” said Seema Shah, chief global strategist at Principal Asset Management. “The labor market is hot, hot, hot, heaping pressure on the Fed to continue raising policy rates.”

Leisure and hospitality led the job gains, adding 88,000 positions.

Other sector gainers included health care (45,000), government (42,000), and other services, a category that includes personal and laundry services and which showed a total gain of 24,000. Social assistance saw a rise of 23,000, which the Labor Department said brings the sector back to where it was in February 2020 before the Covid pandemic.

Construction added 20,000 positions, while information was up 19,000 and manufacturing saw a gain of 14,000.

On the downside, retail establishments reported a loss of 30,000 positions heading into what is expected to be a busy holiday shopping season. Transportation and warehousing also saw a decline, down 15,000.

The numbers come as the Fed has raised rates half a dozen times this year, including four consecutive 0.75 percentage point increases.

Despite the moves, job gains had been running strong this year if a bit lower than the rapid pace of 2021. On monthly basis, payrolls have been up an average of 392,000 against 562,000 for 2021. Demand for labor continues to outstrip supply, with about 1.7 positions open for every available worker.

Fed Chairman Jerome Powell earlier this week said the job gains are “far in excess of the pace needed to accommodate population growth over time” and said wage pressures are contributing to inflation.

“To be clear, strong wage growth is a good thing. But for wage growth to be sustainable, it needs to be consistent with 2 percent inflation,” he said during a speech Wednesday in Washington, D.C.

Markets expect the Fed to raise its benchmark interest rate by 0.5 percentage points when it meets later this month. That’s likely to be followed by a few more increases in 2023 before the central bank can pause to see how its policy moves are impacting the economy, according to current market pricing and statements from several central bank officials.

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