Payrolls and wages blow past expectations, take flight as Fed rate hike looms

Job growth in November was much better than expected despite the Federal Reserve̵7;s aggressive efforts to combat the slowing labor market and inflation.

The Labor Department reported on Friday that non-farm payrolls increased by 263,000 for the month, while the unemployment rate stood at 3.7%. Economists polled by Dow Jones were looking for a 200,000 increase in the payroll number and a 3.7% jobless rate.

The monthly gain was a slight decrease from October’s revised 284,000. A broad measure of unemployment that includes discouraged workers and those holding part-time jobs for economic reasons eased to 6.7%.

The number will likely do little to slow a Fed that has been steadily raising interest rates this year to bring down inflation that is still running near its highest level in more than 40 years. The rate hike brought the Fed’s benchmark overnight lending rate within its target range of 3.75%-4%.

In another blow to the Fed’s anti-inflation efforts, average hourly earnings rose 0.6% for the month, more than double the Dow Jones estimate. Wages were up 5.1% on a year-over-year basis, also higher than expectations of 4.6%.

The Dow Jones Industrial Average fell as much as 350 points following reports on concern hot jobs data could make the Fed even more hawkish. However, the shares recovered most of their losses as the trading session came to a close. Treasury yields initially jumped on the Jobs news and later turned mixed.

“263,000 jobs have been added even after some raised policy rates [375] Basis points are no joke, said Seema Shah, chief global strategist at Principal Asset Management. “The labor market is hot, hot, hot, pressure on the Fed to raise policy rates.”

Leisure and hospitality led the job growth, adding 88,000 positions.

Other sector gainers included health care (45,000), government (42,000) and other services, a category that includes personal and laundry services and which showed a total gain of 24,000. Social assistance saw an increase of 23,000, which the Department of Labor said the sector was scaled back to in February 2020 covid pandemic,

Construction added 20,000 positions, while information saw a gain of 19,000 and manufacturing 14,000.

On the downside, retail establishments reported losses of 30,000 positions amid what is expected to be a busy holiday shopping season. Transportation and storage also saw a decline of 15,000.

The numbers come as the Fed has raised rates a half-dozen times this year, including four consecutive 0.75 percent increases.

Despite the moves, job gains this year were running strong, albeit slightly below the torrid pace of 2021. On a monthly basis, payrolls averaged 392,000 for 2021 against 562,000. Labor demand is outstripping supply, with approximately 1.7 positions open for every available worker.

“The Fed is tightening monetary policy but someone forgot to tell the labor market,” said Brian Coulton, chief economist at Fitch Ratings. “The good thing about these numbers is that they show that the US economy has returned strongly to growth in the second half of the year. But continued job expansion at this pace does little to ease the labor supply-demand imbalance.” Won’t which is worrying the Fed.

fed president Jerome Powell It said earlier this week that job gains “far exceed the pace needed to accommodate population growth over time” and said wage pressures were contributing to inflation.

“To be clear, strong wage growth is a good thing. But for wage growth to be sustainable, it needs to be in line with 2 percent inflation,” he said during a speech Wednesday in Washington, DC.

Markets expect the Fed to hike its benchmark interest rate by 0.5 percent when it meets later this month. According to current market pricing and statements from several central bank officials, some more hikes are likely in 2023 as the central bank waits to see how its policy moves are affecting the economy.

Friday’s number had little impact on rate expectations, with traders reporting a roughly 80% chance the Fed would turn down for a half-point hike, according to data from CME Group.

“The economy is big and it takes a long time, many months, for these things to filter out,” said Randy Frederick, managing director of trading and derivatives at Charles Schwab. “The impact of these rate hikes hasn’t really been felt yet. Powell is right to be a little cautious.”

Powell stressed the importance of returning labor force participation to its pre-pandemic level. However, November reports showed participation fell a tenth of a percentage point to 62.1%, tied for the lowest level of the year as the labor force fell by 186,000 and is now slightly below February 2020 levels .