- The United States added more payrolls than expected in November, marking another month of strong growth.
- This expansion, along with even higher wages, is good news for workers who are still changing jobs.
- This scorching job market could mean more economic problems later on as the Federal Reserve steps in.
Hiring continues to explode in America. But a boiling labor market could encourage the Fed to continue to step up its war on inflation and could deepen the recession next year more than expected.
According to the latest data release from the Bureau of Labor Statistics, in November the country added 263,000 payrolls. That’s above the 200,000 payroll economists Bloomberg polled and means a month longer than expected of stronger hiring.
Although overall job creation in November was lower than October’s revised gain of 284,000, growth was positive for most major industries in November.
November’s increase is good news for workers, who also got another raise that month. Wage growth remained strong in November, with the average hourly wage rising 5.1% year-on-year, above the 4.6% predicted by economists polled by Bloomberg. Profits also rose 0.6% alone in November, far from a slowdown.
“Overall, the labor market is still hot. Despite headlines of layoffs and hiring freezes, employers are continuing to hire,” Daniel Zhao, chief economist at Glassdoor, told Insider. “Ultimately, this is a positive sign for people who are still trying to find the right job for them.”
“The big picture here is that the job market still has a lot of resilience,” Nick Bunker, director of economic research at Indeed Hiring Lab, told Insider.
Based on recent robust income growth and employers creating jobs at a “very rapid pace,” Bunker said “jobs and wages have a lot more momentum than previously thought.” . Bunker also noted that workers still have bargaining power.
But while all of this data spells good news for workers, it could have more serious consequences for the rest of the economy.
Bunker said the US labor market is “slowing down a bit” but has “a lot more momentum than the Federal Reserve would like.” The Federal Reserve tried to pour cold water on a hot labor market by raising interest rates: four times in a row, the central bank raised interest rates by 0.75%, which is the most aggressive measure it has taken so far to combat inflation.
The extreme increases have raised concerns among some Democratic lawmakers who argue the tactic could plunge the economy into a recession and trigger a series of job losses, but as the latest jobs data shows, the labor market keep shining.
Yet while Jerome Powell, the Federal Reserve Chairman, signaled that rate hikes could slow in December, he noted in a Wednesday speech that “the way forward for inflation remains highly uncertain” and that interest rates will probably have to stay high for sometimes.
“Restoring price stability is likely to require keeping policy tight for some time,” Powell said. “History strongly cautions against premature policy easing. We will stay the course until the job is done.”
With a thriving labor market, Bunker said “the risk of an impending recession is relatively low.”
But, Bunker said, there is still a risk that the still strong labor market could cause the Federal Reserve to become more hawkish and continue to raise rates aggressively, potentially tipping the economy into a recession.
“In the short term” the current labor market is “good news”, he said.
“For maybe the second half of next year, that might not be good news depending on how the Federal Reserve interprets that,” he added.
There could still be a recession brewing
Ever-higher interest rates could signify the dreaded term that has been hovering over the economy for the past few months: recession.
Bank of America economists predicted this week that the United States would enter a severe economic slowdown in the first quarter of 2023, with growth expected to fall 0.4%. Deutsche Bank economists also see a bleak outlook for the stock market, with major US stock indices set to plunge 25% in the event of a potential recession.
But most predictions for a recession next year have been that it will be shallow and mild, which Brian Moynihan, the CEO of Bank of America, recently suggested to CNN.
Although the labor market is still hot, it is not growing at the same dizzying speed as last year. Job offers – while high – are slowly cooling, which is of particular concern to the Fed.
“I don’t think this report changes the Fed’s view of the current labor market situation,” Zhao said. “Yeah, we’ve seen wage growth pick up a bit, but I saw the increase in wage growth as a speed bump on the Fed’s path to a soft landing.”
Amid fears of a recession, however, Powell and Treasury Secretary Janet Yellen believe it is possible to achieve a soft landing, in which the Fed fights inflation while avoiding a recession, but the way to follow continues to shrink.
“If you look at this year, no one expected us to raise rates so much, no one expected inflation to be so strong and persistent and spread so widely through the economy. “Powell said during his remarks on Wednesday.
“And so to the extent that we have to keep the rates higher or keep them higher for longer, that’s going to narrow the path to a soft landing,” he said. “On the other hand, if we get good data on inflation…if all of these things start to swing the other way, we might just get there.”
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