Three signs from today's jobs report that suggest inflation will remain elevated

Three signs from today’s jobs report that suggest inflation will remain elevated

Friday’s jobs report showed that the booming US economy is creating hundreds of thousands of jobs, suggesting rising prices are here to stay despite the Federal Reserve’s efforts to contain them.

The United States added 263,000 jobs in November, according to the federal jobs report released Friday, well above the 200,000 job gains expected by economists. The unemployment rate also held steady at 3.7%, just 0.2 percentage points above its February 2020 level.

That’s not bad news if you’re looking to get a different or new job, but it’s bad news for policymakers who worry about inflation — a huge political issue for both parties.

It comes days after Fed Chief Jerome Powell signaled that the central bank wanted to scale back interest rate hikes, raising red flags about whether that would change. The shares initially fell in the news before rallying before the close. The S&P 500 index ended down a tenth of a point for the day.

Here are three data points in the report that suggest inflation is not slowing and will complicate the Fed’s interest rate plans.

New report showed rapid job gains

The United States had added an average of 392,000 jobs per month since the start of the year. Although this is slower than the average monthly gain of 562,000 in 2021, job growth is still much faster than the average monthly gain of 178,000 in 2019.

A strong labor market does not necessarily drive up inflation on its own, and it is possible that the United States will still see strong job creation without high inflation. Inflation remained below the Fed’s 2% target, even as the US saw the unemployment rate drop to 3.5% in 2019.

But many of the forces driving rapid job creation, including the resilience of consumer spending, could also drive up consumer prices.

“The labor market appears to be normalizing a lot from the pandemic and the reopening of shocks, and not necessarily in a way that leads to recession,” said Preston Mui, research economist at nonprofit Employ America. , in an analysis Friday.

“However, we have yet to see the full effects of the Federal Reserve’s interest rate hikes, and we should be watching for signs of further deterioration in the months ahead.”

Report finds wages are growing faster

The Fed’s primary means of fighting inflation is by raising interest so as to increase costs for households, leaving them with less money to spend on goods and services. It’s harder if US paychecks continue to grow at a rapid pace.

The average hourly wage rose 0.6% in November, much faster than the 0.3% wage growth economists expected last month, for an annual gain of 5.1%. The Labor Department also revised upward September and October wage growth, after initial reports showed wage growth was heading toward a more sustainable pace.

“The biggest news in this release is a big upward revision to wage growth for September and October and a big number for November,” Jason Furman, who chaired the House Council of Economic Advisers, said on Twitter. Blanche (CEA) under former President Obama.

“This is the second time this year that we have seen [revisions] like that dashing the hopes that may be nominal [wage] growth was slowing,” he continued.

It may seem odd to want people to make less money if they are struggling to keep up with rising prices. But Fed Chairman Jerome Powell said on Wednesday that it would be impossible for companies to stop raising prices at rapid rates until the costs of paying and recruiting workers stabilized.

For this reason, Powell said, the Fed would continue to try to reduce the number of open jobs and employers’ needs for new workers, two key forces behind rapid wage growth. Without many jobs to choose from, workers will eventually have to settle for lower wages than they could have gotten in a warmer economy.

“To be clear, strong wage growth is a good thing,” Powell said in remarks to the Brookings Institution.

“But for wage growth to be sustainable, it needs to be consistent with 2% inflation,” he continued, referring to the Fed’s annual inflation target.

Report shows overall membership remains stagnant

The U.S. workforce is still down about 3.5 million workers from its pre-pandemic size and has shown little progress in closing that hole.

The labor force participation rate and employment-to-population ratio have each been little changed since the start of the year, even as a historically strong job market and rapid wage growth propelled millions of Americans into better jobs. .

Economists do not yet know why more workers are not re-entering the labor market, although they generally blame a combination of early retirements during the pandemic, the lingering effects of COVID-19 infections and a sharp drop in the ‘immigration.

“Given the increase in wages, one would think that workers would be drawn into the labor market. But that’s not happening in the current economic expansion,” Joe Brusuelas, chief economist at audit and tax firm RSM, explained in an analysis.

“The combined long-term demographic trends of an aging workforce and lower immigration, along with the impact of the pandemic, are driving an acceleration of structural change in the workforce.”

These changes have left companies struggling to fill vacancies, raise wages to stay adequately staffed, and raise prices to compensate.

#signs #todays #jobs #report #suggest #inflation #remain #elevated

Leave a Comment

Your email address will not be published. Required fields are marked *