The U.S. economy added 263,000 jobs in November, bolstering a labor market that has proved surprisingly resilient, while complicating the Federal Reserve’s top task of tackling inflation, which remains the nation’s biggest economic threat.
Economists say they are encouraged by the labor market’s durability, but they worry that continued momentum — and rising wages, in particular — will force the Fed to more aggressively raise interest rates in its quest to slow the economy for longer, increasing the risk of a recession.
“The job market continues to chug along despite various head winds,” said Daniel Zhao, lead economist at Glassdoor. “We are getting some mixed signals from the report — that isn’t a surprise at a time when the economy is at a turning point — but stepping back, this still points to a job market that is more resilient than we expected. On the flip side of that, inflation has been more resilient than we expected, too.”
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 tamp down on rising prices. Despite those efforts, overall inflation, at 7.7 percent, has just slowly nudged down from its summer peak of 9.1 percent. While consumers embrace the relief so far, there’s still a long way to go.
The central bank is hoping to bring down inflation to its target of 2 percent without tanking the economy or setting off a rise in unemployment.
“We’re obviously in a moment of tremendous risk in the economy right now,” said Adam Ozimek, chief economist at Economic Innovation Group, a nonpartisan business organization. “You can’t rule out a recession, but the economy seems to be rebalancing toward sustainable growth.”
Stock markets slipped on the news, dropping sharply as trading opened before recovering around midday. All three major indexes were down most of Friday, although the Dow Jones industrial average reversed course late in the day.
The still-strong labor market continues to be one of the sturdiest pillars of an otherwise puzzling economy. Americans are spending heavily, 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, though, that a persistently hot labor market could lead to rising wages, which could then worsen inflation. Wage growth, which had been moderating in recent months, picked up in October and November. Federal Reserve Chair Jerome H. Powell this week stressed that as long as inflation remains too high, Americans’ wage increases will not translate to 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 sustainable, strong labor market, where real wages are going up right across the wage spectrum, especially for people at the lower end, you’ve got to have price stability. And until we restore that, we can’t get back to that place.”
Average hourly wages rose 0.6 percent between October and November, the largest increase in 10 months. Overall pay is up 5.1 percent from a year ago, to an hourly average of $32.82, which economists say puts additional pressure on the central bank to stay on its course of aggressive monetary tightening.
“This is another wake-up call that the Fed is not going to stop raising rates any time soon,” said Megan Greene, global chief economist at the Kroll Institute. “I have been surprised by just how strong the labor market is — but it can’t last. We’re in a weird economy and the data is all over the place.”
Although hiring has remained brisk, Americans continued to drop out of the labor force in November. The share of people working or looking for work fell for the third straight month in October. Overall, the labor market is still short 102,000 workers from before the pandemic, which economists say is a worrisome trend that could continue driving up wages as employers compete for a shrinking pool of employees.
More broadly, the latest jobs numbers show a bifurcation in hiring as Americans shift more of their spending away from goods to services. Many of the biggest job gains in November were concentrated in service industries, such as leisure and hospitality, health care and construction. Meanwhile, employment fell in retail, transportation and warehousing as businesses scaled back on holiday hiring.
Some restaurant owners say that after a short-staffed summer, they’re finally having luck finding employees. In Bath, Maine, Mae’s Cafe & Bakery has added six new workers — four servers, one busser and an administrative assistant — in the last month, bringing its total head count to 28.
“We’ve been running lean for so long, but it felt like we suddenly got lucky and were able to find the people that we did,” said Julie Cook, general manager. “But that’s not to say it’s been easy. Our biggest challenge has been finding cooks, especially for the weekends.”
Eventually, Cook says she’d like to be open six days a week instead of seven, and expand the cafe’s repertoire to include dinner, but not until she’s been able to secure more employees.
“Our customers have been a little crusty because they have to wait or sometimes we just have a limited menu, but if somebody gets sick, there isn’t much you can do,” she said. “We are staffed to the limit.”
A separate government report earlier this week showed that there were 10.3 million job openings in October, down from 10.7 million a month earlier, but still near longtime highs.
“There is a disconnect between workers and jobs,” said Giacomo Santangelo, economist at Monster.com. “You can say there are openings for every unemployed person, but that doesn’t match up to reality. There’s huge demand in nursing, but if you lost your job at Twitter or Meta or Alphabet, you’re not going to be a nurse.”
That divide is becoming increasingly clear as some companies have announced sweeping layoffs, while many others struggle to find enough workers. Some of the country’s largest employers, including Walmart, Amazon and Google, have recently cut thousands of white-collar jobs. Tech firms have weathered a particularly sharp slowdown with heavy job losses and hiring freezes, and media companies including CNN and Gannett newspapers announced layoffs this week. Meanwhile, employers in low-paying sectors such as education, health care and hospitality report widespread labor shortages. (Amazon founder Jeff Bezos owns The Washington Post.)
Roxanne Pauni, who owns a child-care center in Logan, Utah, says she’s hired at least 80 people in the last two years, though she’s currently down to 25. She’s boosted hourly pay from $9 to $15, but still has trouble finding and keeping employees.
“You get a couple of good workers here and there, but some of them just last one or two paychecks,” she said. “It’s hard to compete when everybody else in the area is trying to hire, too.”