The US economy added more jobs than expected in November in a sign that demand for new workers remains strong despite the Federal Reserve’s efforts to cool the economy.
Non-farm payrolls rose by 263,000 last month, compared with an expected 200,000, according to data released by the Bureau of Labor Statistics. The figures marked a step down from the upwardly revised 284,000 jump recorded in October and the 269,000 rise in September.
Despite these gains, the unemployment rate remained steady at 3.7 per cent.
The US dollar index jumped 0.8 per cent on release of the data, because of expectations that the figures will add to pressure on the Fed to keep raising interest rates. The blue-chip S&P 500 stock index clawed back earlier losses to close roughly flat for the day and US government bonds sold off, sending yields higher.
The two-year Treasury yield, which moves with interest rate expectations, rose 0.11 percentage points to 4.37 per cent, but later reversed to 4.28 per cent.
“The labour 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 labour market, so it’s good to see that job creation continues. On the other hand, it complicates the Fed’s job.”
The US central bank is trying to damp economic activity by rapidly raising borrowing costs in an attempt to tame inflation that is still running near multi-decade highs.
Consumer demand has already started to ease, the housing sector has weakened and the technology sector has suffered a wave of job cuts. However, the economy more broadly has showed surprising resilience, despite the Fed’s benchmark policy rate now closing in on 4 per cent.
“We’ve now created 10.5mn jobs since I took office, more than any administration in history at this point in the presidency,” president Joe Biden told reporters at the White House on Friday, as he signed Congress’s bill to avert a looming rail strike that had been scheduled to hit over the holidays.
“Things are moving,” Biden said. “They’re moving in the right direction as we go into the holiday season. The Americans are working. The economy is growing. Wages are rising faster than inflation. And we’ve avoided a catastrophic rail strike.”
The US central bank has signalled it will end its string of 0.75 percentage point rate increases and move to a half-point rise in December, even as it ultimately targets a higher level of interest rates next year than expected. Many officials have indicated the benchmark policy rate could eventually reach 5 per cent.
In remarks delivered this week, chair Jay Powell said the need for higher rates stemmed from the fact that the Fed had seen “only tentative signs of moderation of labour demand”. While the number of job vacancies has fallen from its peak, it still remains historically elevated.
Fed officials are chiefly concerned about wage growth and the effect it is having on price pressures, given it is running far in excess of what is needed for inflation to fall back to the Fed’s 2 per cent target.
Average hourly earnings in November increased another 0.6 per cent, higher than the previous period and amounting to a 5.1 per cent annual jump. Mocuta said the wage data were the “most troublesome” aspect of the latest report, suggesting the Fed’s rate rises will continue for some time.
Powell also noted this week that monthly jobs growth also remained far too high, citing estimates suggesting the pace needs 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, compared with 562,000 monthly in 2021.
Many sectors remain hobbled by worker shortages, pushing up wages as companies try to attract new hires. In November, the so-called labour force participation rate, which tracks the share of workers either employed or looking for a job, remained stuck below pre-coronavirus pandemic levels at 62.1 per cent. Holding back labour supply are a flood of early retirements and a slowdown in immigration.
The leisure and hospitality sector recorded the biggest gains in November, adding 88,000 jobs. Yet the industry as a whole has still not recouped all of the jobs lost during the pandemic. Employment in healthcare, local government and other services also increased at a robust pace, while manufacturing and construction jobs saw more muted gains.
The transportation and warehousing sector reported losses, as did retail.
Loretta Mester, president of the Cleveland Fed, recently told the Financial Times that a reduced supply of workers would probably mean the central bank would have to do more to bring down demand for new hires, suggesting job losses on the horizon.
Economists expect the unemployment rate to surpass 5 per cent next year, as the Fed keeps rates at a level that will curb growth.
Additional reporting by Kate Duguid in New York and Courtney Weaver in Washington