The U.S. economy continued to shed jobs in November, suggesting there is still juice left in a job market that has slowed almost imperceptibly since the pandemic recovery last year.
Employers added 199,000 jobs last month, the Labor Department reported Friday, while the unemployment rate fell to 3.7 percent from 3.9 percent. The increase in employment includes tens of thousands of autoworkers and actors who returned to work after strikes, as well as others in related businesses that were stalled by the strikes, meaning underlying job growth is slightly weaker.
Still, the report signals that the economy is still far from recession, despite a year and a half of interest rate hikes that have weighed on consumer spending and business investment. The picture of strong demand for labor was reinforced by wages rising 0.4 percent over the month, more than expected, and the work week becoming slightly longer.
Most analysts were surprised by the durability of the recovery, thanks in large part to the money consumers have accumulated in recent years through government stimulus and forced savings. This has created jobs in the service industry despite rising costs and the resumption of mandatory student debt repayment.
“That's the definition of a soft landing: It slows down slowly, and that's exactly what you want,” said Martin Holdrich, senior economist at Woods & Poole Economics. However, he noted that given strong productivity growth, continued labor market tightness need not prompt the Federal Reserve to raise interest rates further.
“These numbers do not indicate an overheated economy and shortages that will drive up inflation,” Holdrich said.
The annual inflation rate recently fell to 3 percent, less than half what it was when the Fed began raising interest rates and significantly lower than the current pace of wage growth. Americans seem to have noticed: Consumer confidence rose sharply in December, according to data released Friday by the University of Michigan, and respondents' expectations for future inflation fell.
The Federal Reserve's interest rate setting committee meets next week and is widely expected to continue its recess, with market speculation shifting to when and by how much interest rates will be cut in 2024. Major stock indexes rose after the report, as did bond yields.
November's job gains were largely in line with recent months and were driven by strike activity, although down from the 240,000 new jobs added per month on average over the year ending in October. As of the November survey, about 10,000 workers were still striking at workplaces, including casinos and hospitals.
However, employment growth has moderated, with most of the gains coming from the service and public sectors. In November, healthcare added 77,000 jobs and government added 49,000 – both employers less tied to the underlying strength of the economy.
Things are different for companies that rely on the sale of physical goods. Manufacturers have rebuilt jobs lost during the car strikes, but have otherwise been stagnating since the start of the year. Retail shed a seasonally adjusted 38,000 jobs, reflecting what appeared to be the weakest holiday hiring season since 2013.
“What we've seen is that labor demand is more resilient than we perhaps thought six months ago is the structural strength of the government and health care,” said Olivia Cross, North America director at research firm Capital Economics. “In the more cyclical sectors where we've seen a much larger slowdown, I think we expect them to continue to weaken.”
Temporary employment services, often seen as an indicator of demand for workers, cut 14,000 jobs in November and lost 177,000 last year, a sign that employers can handle customer requests with their permanent staff.
That's certainly true for Luke Barber. He runs an industrial packaging company in Bangor, Michigan, and most of his customers are automotive suppliers who need to store and ship their products undamaged. Mr. Barber received a wave of orders as those manufacturers built up inventory during autoworker strikes in September and October, meaning he had to schedule overtime for his 70 employees and hire 30 contract workers.
Now that the warehouses are full, these contracts have expired. Mr. Barber has laid off his temporary staff and is just trying to keep his employees employed. He has no plans to lay off anyone, but he is investing in automation to increase his labor expenses; The pandemic period has made it difficult to maintain a full roster, and he said he has increased wages by 25 to 30 percent since 2019.
“They say inflation is falling at the moment, but we are not going to go back and roll back the increases we just made,” Mr Barber said. He expects people will buy fewer cars next year as auto suppliers invest more in research and development to convert their supply chains to battery-electric vehicles.
“We're entering this cycle on the automotive side with lower volumes, and there's no consumer demand there and borrowing costs are high,” Mr. Barber said. “So I expect some restrictions.”
The trajectory for most of 2023 points to the kind of steady, painless easing that the Fed is aiming for with its interest rate policy: A record number of job vacancies have fallen without a worrying increase in the unemployment rate.
Some industries that enjoyed a boost during the pandemic have pulled back, but others that were still hungry for work soaked up excess workers, helping to stave off a surge in unemployment. The entertainment, hotel and restaurant industry added 40,000 jobs in November, but is still at 158,000 jobs after the industry's peak in February 2020, suggesting there is still room for growth.
“If a sector like wholesale or retail starts laying off workers, that could very easily spill over into something like leisure and hospitality,” said Michael Reid, U.S. economist at RBC Capital Markets. “If there is a decline in spending in these sectors, we still see strength in health care and social assistance.”
Although the unemployment rate has risen from historic lows earlier this year, much of it is due to people starting to look for work. The working population has grown by 1.16 million people since July.
The proportion of people over 55 who are in employment – working or looking for work – fell in 2020 and has not recovered, but people aged 25 to 54 have returned. It is becoming increasingly clear that women in this age group, who achieved record participation this year, have benefited from the wider availability of remote work. As the availability of child and elder care continues to recover—these workers are still not at pre-pandemic levels—even more parents may choose to take jobs as well.
This influx of workers, coupled with a rebound in immigration flows, has also taken the wind out of wage increases and made it more difficult for people on the margins of the labor market to find stable jobs with decent pay.
Joshua Rosenthal, 33, attended a professional massage therapy school and lives in Erie, Pennsylvania. But after a few work-related accidents, including a herniated disc in his lower back from working in a trampoline park, he is no longer able to do anything really physical. So he looked for work from July to October, applying to about 200 jobs before landing a job as a technician at a compounding pharmacy, now making $16 an hour.
“People may be paying slightly higher wages, but they're still not getting to the level of wages that are livable, or what I would call livable; It’s more of a living wage,” said Mr. Rosenthal, who lives with his mother to save money. “I know they say people are hiring, but I don’t really believe it.”
Despite the labor market's stronger performance over a longer period of time so far, most forecasters expect job growth to continue to weaken in early 2024 as consumers deplete their savings, reduce spending and fill remaining labor shortage gaps.
But that doesn't necessarily mean a severe downturn: Three out of four members the National Association for Business Economics surveyed in November said the chance of a recession next year was less than 50 percent.
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