Economic Report: U.S. adds 263,000 jobs in November and wages rise sharply — far too much for the Fed’s liking

Economic Report: U.S. adds 263,000 jobs in November and wages rise sharply — far too much for the Fed’s liking

The numbers: The U.S. created a robust 263,000 new jobs in November, a historically strong pace of hiring that’s good for workers but that also threatens to prolong a bout of high U.S. inflation.

The still-rapid gains in hiring have become a big source of angst at the Federal Reserve. Senior central bank officials worry wage growth stemming from a tight labor market is adding upward pressure to already high U.S. inflation.

The Fed is expected to keep raising interest rates — and push the economy closer to recession — until hiring slows, labor shortages ease and wage growth wanes.

U.S. stocks fell in premarket trades and bond yields rose after the report. Economists polled by The Wall Street Journal had forecast smaller 200,000 increase in new jobs.

The U.S. economy created 263,000 new jobs in November — far more than Wall Street had expected.

Justin Sullivan/Getty Images

The unemployment rate was unchanged at 3.7%, the government said Friday, and stayed close to a half-century low.

Hourly pay, meanwhile, rose by a sharp 0.6% last month to an average of $32.82. That’s the biggest advance in 13 months and was far stronger than Wall Street expected.

The increase in wages over the past year climbed to 5.1% from 4.9% in the prior month. Wages are still rising much faster than they were before the pandemic, when they rose about 2% to 3% a year.

The demand for labor is still strong,” said chief economist Steve Blitz of TS Lombard. “It’s still putting upward pressure on wages.”

The Fed has embarked on a series of increases in U.S. interest rates to try to slow the economy just enough to tame inflation without tipping the economy into recession.

The bank is trying to bring inflation back down to pre-pandemic levels of 2% from the current rate of 6%, based on the PCE price index.

“The level of [hiring] is not conducive to getting the base inflation rate back to 2%,” Blitz said.

The tough medicine, senior Fed officials figure, is likely to lift the unemployment rate to as high as 5% by 2023. Some Wall Street analysts believe the jobless rate will go even higher if a recession takes place as many forecast.

Higher borrowing costs slow growth by depressing consumer spending and business investment, the two key pillars of the economy.

Another potential pressure valve for the economy is not offering any relief. The share of working-age people in the labor force — known as the labor-force participation rate — fell a tick to 62.1% to mark the third drop in a row.

The lack of people looking for work is another big factor contributing to the labor shortage.

Key details: The increase in employment last month was concentrated in hotels, restaurants and health-care businesses. Americans have gone back to their doctors and are spending more on travel and entertainment.

Hiring also rose in construction and manufacturing, two areas of the economy that are under more duress. Government employment increased by 42,000.

There were some signs of labor-market softness in the report. Employment shrank in retail for the third month in a row. Warehouse and transportation jobs also declined.

Hiring at professional businesses, a leader in employment, rose by a meager 6,000. That’s the smallest increase since April 2021.

Hiring in October and September were little changed after government revisions. The economy added 284,000 jobs in October and 269,000 in September.

Big picture: The economy is slowing, but the labor force is still an oasis of strength.

For the Fed, it’s too much of a good thing. The central bank wants the demand and supply of labor to become more balanced to ease the pressure on wages.

The ongoing labor shortage, however, might be a savings grace for the economy. Many businesses have told the Fed they plan to hold on to more workers than usual even if the economy slows because it’s been so hard to hire in the first place.

If that’s the case, the economy might escape a recession altogether or only suffer a short and shallow downturn, some economists say.

Looking ahead: “Job creation continues to top expectations, holding the unemployment rate near half-century lows,” said Jim Baird, chief investment officer at Plante Moran Financial Advisors.

“The Fed may be closing in on a point that the pace of rate hikes could be stepped down, but the combination of tight labor markets and stubbornly elevated inflation leaves policymakers with a clear directive: keep tightening.”

Market reaction: The Dow Jones Industrial Average

and S&P 500

were set to decline sharply in Friday trades.

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