Economists say they are encouraged by the sustainability of the labor market, but fear that continued momentum — and rising wages, in particular — will force the Fed to raise interest rates more aggressively in its quest to slow the economy for longer, increasing the risk of a recession.
“The labor market continues to turn despite various headwinds,” said Daniel Zhao, chief economist at Glassdoor. “We’re getting mixed signals from the report – not a surprise at a time when the economy is at a crossroads – but looking back, it still points to a more resilient labor market than expected. On the other hand, inflation has also been more resilient than expected. »
The Fed has already raised interest rates six times this year — and plans to do so again in December — in hopes of slowing the economy enough to rein in rising prices. Despite these efforts, headline inflation, at 7.7%, has just slowed slowly from its summer peak of 9.1%. While consumers are accepting the relief so far, there is still a long way to go.
The central bank hopes to bring inflation back to its 2% target without sinking the economy or triggering a rise in unemployment.
“We’re obviously in a moment of huge risk in the economy right now,” said Adam Ozimek, chief economist at Economic Innovation Group, a nonpartisan trade organization. “You can’t rule out a recession, but the economy appears to be rebalancing towards sustainable growth.”
Stock markets slid on the news, falling sharply as markets opened before rallying around midday. All three major indexes were down most of Friday, although the Dow Jones Industrial Average reversed late in the day.
The still strong labor market continues to be one of the strongest pillars of an otherwise confusing situation economy. Americans are spending a lot, even though they are saving less than they have in 15 years. Manufacturing activity contracted in November for the first time in more than two years.
The Fed remains concerned, however, that a still hot labor market could drive up wages, which could then worsen inflation. Wage growth, which had moderated in recent months, accelerated in October and November. Federal Reserve Chairman Jerome H. Powell stressed this week that as long as inflation remains too high, wage increases for Americans will not translate into a higher standard of living.
“Right now people’s wages are being eaten up by inflation,” Powell said at an event at the Brookings Institution on Wednesday. “But if you want to have a strong and sustainable labor market, where real wages increase across the whole wage spectrum, especially for the lower income earners, you have to have price stability. And until we get that restored, we can’t go back to that place.
The average hourly wage rose 0.6% between October and November, the biggest increase in 10 months. Overall pay rose 5.1% from a year ago to an hourly average of $32.82, which economists say puts further pressure on the central bank to maintain its course of aggressive monetary tightening.
“This is another red flag that the Fed won’t stop raising rates anytime soon,” said Megan Greene, chief global economist at the Kroll Institute. “I was surprised by the strength of the job market, but it can’t last. We’re in a weird economy and data is everywhere.
Although hiring remained strong, Americans continued to leave the labor force in November. The proportion of people working or looking for work fell for the third consecutive month in October. Overall, the job market is still short of 102,000 pre-pandemic workers, which economists say is a worrying trend that could continue to drive up wages as employers compete for a pool of workers. shrinking employees.
More broadly, the latest jobs numbers show a bifurcation in hiring, with Americans shifting more of their spending from goods to services. Many of the largest job gains in November were concentrated in service industries, such as leisure and hospitality, health care and construction. Meanwhile, employment fell in retail trade, transportation and warehousing as companies reduced holiday hiring.
Some restaurateurs say that after a short-staffed summer, they are finally lucky to find employees. In Bath, Maine, Mae’s Cafe & Bakery has added six new employees — four servers, a bus and an administrative assistant — in the past month, bringing its total staff to 28.
“We’ve been running for so long, but it felt like we suddenly got lucky and were able to find the people we had,” said Julie Cook, chief executive. “But that doesn’t mean it was easy. Our biggest challenge has been finding cooks, especially for the weekends.
Eventually, Cook says she would like to be open six days a week instead of seven and expand the cafe’s repertoire to include dinner, but not before she can find more employees.
“Our customers have been a bit crusty because they have to wait or sometimes we just have a limited menu, but if someone gets sick there’s not much you can do,” she said. “We’re on staff limit.”
A separate government report earlier this week showed there were 10.3 million job vacancies in October, down from 10.7 million a month earlier, but still close to long-standing highs.
“There is a disconnect between workers and jobs,” said Giacomo Santangelo, economist at Monster.com. “We can say that there are outlets for every unemployed person, but that does not correspond to reality. There’s a huge demand for nursing, but if you lose your job at Twitter, Meta, or Alphabet, you won’t be a nurse.
This divide is becoming increasingly clear as some companies have announced mass layoffs, while many others are struggling to find enough workers. Some of the nation’s largest employers, including Walmart, Amazon and Google, recently cut thousands of white-collar jobs. Tech companies weathered a particularly steep downturn with heavy job losses and hiring freezes, and media companies such as CNN and the Gannett newspapers announced layoffs this week. Meanwhile, employers in low-paying sectors such as education, healthcare and hospitality are reporting widespread labor shortages. (Amazon founder Jeff Bezos owns The Washington Post.)
Roxanne Pauni, who owns a daycare center in Logan, Utah, says she’s hired at least 80 people in the past two years, though she’s down to just 25 now. She has increased her hourly wage from $9 to $15, but still struggles to find and keep employees.
“You have a few good workers here and there, but some of them only last a paycheck or two,” she said. “It’s hard to be competitive when everyone else in the area is also trying to hire.”
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