U.S. employers added a healthy 199,000 jobs last month and the unemployment rate fell, fresh signs that the economy could achieve an elusive “soft landing,” in which inflation would return to the Federal Reserve’s 2% target without causing a steep recession.
Friday’s report from the Labor Department showed that the unemployment rate dropped from 3.9% to 3.7%, not far above a five-decade low of 3.4% in April. The jobless rate has now remained below 4% for nearly two years, the longest such streak since the late 1960s.
Last month’s job gain was inflated by the return of about 40,000 formerly striking auto workers and actors, who were not at work in October but were back on the job in November.
The latest jobs report and other recent data portray an economy and a labor market that, while still sturdy, are downshifting back to pre-pandemic norms. Businesses are hiring but are less desperate to fill huge numbers of jobs. More Americans have come off the sidelines to look for work, and immigration has jumped this year.
As a result, employers are finding it easier to hire, with fewer complaints of worker shortages and less pressure to aggressively raise pay, which can fuel inflation.
“What we wanted was a strong but moderating labor market, and that’s what we saw in the November report,” said Robert Frick, an economist at the Navy Federal Credit Union.
A cooling job market is also just what the Fed was hoping to achieve as it sought to slow the economy and inflation with its rapid interest rate hikes in the past year and a half. Hiring has averaged just over 200,000 a month in the past three months, down from an average of about 320,000 in the same period last year.
And most of last month’s job gains were concentrated in just a few sectors. The health care industry — doctors’ offices and hospitals — added 93,000 jobs in November. Hotels and restaurants added 40,000, and governments 49,000, accounting for nearly all the job growth. By contrast, retailers, shipping and warehousing companies, and temporary help agencies all cut jobs.
Still, last month’s hiring gain raised the proportion of Americans who are employed to 60.5%, the highest level since the pandemic struck, though it remains below the pre-COVID level of 61.1%.
In the meantime, wages are growing at a slower but still-healthy pace. In November, average hourly pay rose 4% from a year earlier, matching the previous month’s figure, which was the smallest since June 2021. Still, average pay is now growing faster than inflation, which should support consumer spending.
And layoffs remain low, according to government data, despite job cuts at such companies as Panera Bread, a restaurant chain, and Spotify, the music streaming platform, which cited higher interest rates as a reason it had to cut about 1,500 jobs globally.
Becky Frankiewicz, president of the staffing giant Manpower Group North America, said more employers are moving workers they may not need in one part of the company to another division rather than laying them off. Many companies still recall the difficulty they had finding workers during the pandemic and want to hold onto staff.
“Everything we see continues to point to a slow glide into a cooler labor market,” she said.
Aaron Seyedian, owner of a small cleaning company based in Takoma Park, Maryland, says his business is still growing and hiring. He has enough demand to add five workers to his 30-person staff.
Seyedian’s company, “Well-Paid Maids,” has just raised its starting pay from $23 to $24 an hour. He said he hasn’t had any trouble finding people to hire.
“From my perspective,” Seyedian said, “the economy is still strong, and people still want to spend money.”
For the Fed, Friday’s jobs report won’t likely alter the near-certainty that it will keep interest rates unchanged for the third straight time when it meets next week. The central bank has raised its key rate 11 times since March 2022, from near zero to roughly 5.4%. The result has been much more expensive mortgages, auto loans, credit cards and business borrowing.
Most economists and Wall Street traders think the Fed’s next move will be to cut rates, though the strength in Friday’s jobs report could lead the central bank to keep rates at a peak for a longer period. Before the jobs report, Wall Street traders foresaw a 55% likelihood that the Fed would cut rates at its March meeting, according to the CME FedWatch, tool. Now, they don’t expect the first cut until May.
Guy Berger, former principal economist at the career website LinkedIn, said the job market’s resilience means the Fed can keep rates high to fight inflation without worrying so much about triggering a recession.
“If we’re not cooling, what’s the rush?” to cut rates, Berger said.
Many of the most recent economic figures have pointed toward a potential soft landing. Companies are advertising fewer job openings, and Americans are switching jobs less often than they did a year ago, trends that typically slow wage growth and inflation pressures.
Most economists expect growth to slow and inflation will continue to decline. The economy is expected to expand at just a 1.5% annual rate in the final three months of this year, down from a scorching 5.2% pace in the July-September quarter. Cooler growth should help bring down inflation while still supporting a modest pace of hiring.
Inflation has tumbled from a peak of 9.1% in June 2022 to just 3.2% last month. And according to a different inflation measure that the Fed prefers, prices rose at just a 2.5% annual rate in the past six months — not far above the central bank’s 2% target.
Christopher Waller, a key Fed official who typically favors higher rates, buoyed the markets’ expectations last week for rate hikes when he suggested that if inflation kept falling, the Fed could cut rates as early as spring.
Fed Chair Jerome Powell, though, pushed back against such speculation last Friday, when he said it was “premature to conclude” that the Fed has raised its benchmark rate high enough to quell inflation. And it was too soon, he added, to “speculate” about when the Fed might cut rates.
But Powell also said interest rates are “well into” restrictive territory, meaning that they’re clearly constraining growth. Many analysts took that remark as a signal that the Fed is done raising rates.