- In the US, more jobs were hired in November than expected, marking another month of strong growth.
- That expansion, along with even higher wages, is good news for workers who are still changing jobs.
- This scorching labor market could lead to more economic troubles later if the Federal Reserve intervenes.
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Hiring continues to boom in America. But a hotter job market could embolden the Fed to further step up its fight against inflation and could make a recession worse than expected next year.
The country added 263,000 new jobs in November, according to the latest data release from the Bureau of Labor Statistics. That’s more than the 200,000 payrolls forecast by Bloomberg economists — and means a better-than-expected month of more resilient hiring.
While total job creation in November was below the revised 284k increase in October, growth for most major industries was positive in November.
The November raise is good news for the workers, who also got another raise that month. Wage growth remained strong in November, with average hourly wages rising 5.1% year-on-year – above the 4.6% forecast by economists Bloomberg. Earnings also rose 0.6% in November alone, far from slowing down.
“Overall, the labor market is still hot. Despite headlines of layoffs and hiring freezes, employers are still hiring,” Daniel Zhao, chief economist at Glassdoor, told Insider. “Ultimately, that’s a positive sign for people who are still trying to find the job that suits them.”
“The big picture here is that the job market is still very resilient,” Nick Bunker, economic research director at Indeed Hiring Lab, told Insider.
Based on robust recent income growth and employers creating jobs at a “really fast rate,” Bunker said that “both jobs and wages are far more dynamic than previously thought.” Bunker also noted that workers still have bargaining power.
But while all of this data is good news for workers, it could have worse ramifications for the rest of the economy.
Bunker said the US job market is slowing “a little bit” but has “far more momentum than the Federal Reserve would like.” The Federal Reserve has attempted to throw cold water on an ailing job market by raising interest rates: four straight times the central bank has hiked rates by 0.75%, the most aggressive move it has taken to fight inflation.
The extreme increases have raised concerns from some Democratic lawmakers, who argue the tactic could push the economy into recession and trigger a stream of job losses, but the latest jobs data show the job market continues to shine brightly.
While Jerome Powell, the Federal Reserve Chair, signaled that rate hikes could slow in December, he noted in a speech on Wednesday that “the path ahead for inflation remains highly uncertain” and interest rates will likely have to remain high at some point .
“It is likely that restoring price stability will require restrictive policies for some time,” Powell said. “History strongly warns against relaxing policies prematurely. We will stay the course until the job is done.”
Given the thriving labor market, according to Bunker, “the risk of an impending recession is relatively low”.
But, Bunker said, there’s still a risk that the ongoing strength in the labor market could prompt the Federal Reserve to tighten and hike interest rates further aggressively – potentially pushing the economy into a recession.
“In the short term” the current job market is “good news,” he said.
“This may not be good news for the second half of next year, depending on how the Federal Reserve interprets it,” he added.
A recession could still be brewing
Ever higher interest rates could mean the dreaded term that has been threatening the economy for several months: recession.
Bank of America economists this week forecast that the U.S. will enter a severe economic downturn in the first quarter of 2023, with growth expected to fall 0.4%. Economists at Deutsche Bank also see a bleak outlook for the stock market, with major U.S. stock indexes expected to fall 25% if a potential recession hits.
But most predictions for a recession next year have been that it will be shallow and mild, as Bank of America CEO Brian Moynihan recently hinted to CNN.
While the job market is still hot, it’s not growing at the same breakneck pace as last year. Job listings – although high – are slowly cooling, something the Fed was particularly concerned about.
“I don’t think this report will change the Fed’s view of where the job market is today,” Zhao said. “Yes, we saw that wage growth picked up a bit, but I saw the increase in wage growth more as a speed bump on the Fed’s path towards a soft landing.”
Amid fears of a recession, both Powell and Treasury Secretary Janet Yellen believe a soft landing, with the Fed fighting inflation while avoiding a recession, is a possibility – but the path to get there is becoming increasingly narrow.
“If you look at how this year has gone, no one expected us to raise rates that much, no one expected inflation to be so high and so persistent and to have spread so far across the economy,” Powell said during his speech on Wednesday.
“And to the extent that we have to keep interest rates higher or higher for longer, that will narrow the path to a soft landing,” he said. “On the other hand, if we get good inflation data … if all of these things start going the other way, then we could very well achieve that.”