The US economy added more jobs than expected in November, a sign that demand for new workers remains strong despite the Federal Reserve’s efforts to cool the economy.
Nonfarm payrolls rose 263,000 last month, versus 200,000 expected, according to data released by the Bureau of Labor Statistics. The numbers marked a drop from the upward-revised jump of 284,000 recorded in october and the rise of 269,000 in September.
Despite these gains, the unemployment rate remained stable at 3.7%.
The U.S. dollar index jumped 0.8% on the release of the data, on expectations that the figures will add pressure on the Fed to keep raising interest rates. The blue-chip S&P 500 stock index fell 1% and US government bonds sold off sharply, pushing yields higher. The two-year Treasury yield, which moves with interest rate expectations, rose 0.11 percentage points to 4.37% at one point.
“The current labor market 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 job market, so it’s good to see that job creation is continuing. On the other hand, it complicates the work of the Fed.
The US central bank is trying to dampen economic activity by rapidly raising borrowing costs in an effort to rein in inflation, which is still near multi-decade highs.
Consumer demand has already started to cool, the housing sector has weakened and the technology sector has suffered a wave of job cuts. However, the economy as a whole has shown surprising resilience, despite the Fed’s benchmark policy rate now nearing 4%.
The central bank has signaled that it will end its run of rate hikes by 0.75 percentage points and moving to a half-point hike in December, although it ultimately targets a higher-than-expected level of interest rates next year. Many officials have indicated that the benchmark policy rate could eventually reach 5%.
In remarks this week, Chairman Jay Powell said the need for higher rates stemmed from the fact that the Fed had seen “only tentative signs of moderating labor demand.” Although the number of vacancies has fallen since its peak, it still remains historically high.
Fed officials are primarily concerned about wage growth and its effect on price pressures, given that it far exceeds what is needed for inflation to return to the 2% target of the Fed.
The average hourly wage in November rose another 0.6%, which is higher than the previous period and represents an annual jump of 5.1%. Mocuta said the payroll data was the “most troublesome” aspect of the latest report, suggesting the Fed’s rate hikes will continue for some time.
Powell also noted this week that monthly job growth also remains far too high, citing estimates suggesting the pace needed to be 100,000 a month just to keep up with population growth. So far this year, the US economy has added 392,000 jobs each month on average, up from 562,000 per month in 2021.
Many sectors remain hampered by labor shortages, driving up wages as companies try to attract new hires. In November, the so-called labor force participation rate, which tracks the share of workers employed or looking for work, remained stuck below pre-pandemic levels at 62.1%. Labor supply is being held back by a flood of early retirements and a slowdown in immigration.
The leisure and hospitality sector posted the strongest gains in November, adding 88,000 jobs. Yet the industry as a whole still hasn’t recovered all of the jobs lost during the pandemic. Employment in health care, local government and other services also grew at a healthy pace, while jobs in manufacturing and construction saw more moderate gains.
The transportation and warehousing sector recorded losses, as did retail trade.
Cleveland Fed President Loretta Mester recently Told the Financial Times that a reduced supply of workers would likely mean the central bank would have to do more to reduce demand for new hires, suggesting job losses on the horizon.
Economists expect the jobless rate to top 5% next year as the Fed holds rates at a level that will dampen growth.
Additional reporting by Kate Duguid in New York