One hundred ninety-nine thousand jobs trigger an unemployment decline, signaling strong hiring momentum and economic "Soft-Landing," in which inflation would return to the Federal Reserve's target of 2% without hitting a recession.
Friday's report from the Labor Department presented a decrease from 3.9% to 3.7%, which is the longest duration that the unemployment rate has remained below 4% for two years since the 1960s. The return of 40,000 auto-workers and actors, who went on strike in October and resumed work in November, contributes to this event.
The newest jobs report and recent data show that the economy and job market, although still strong, are returning to pre-pandemic patterns. Businesses are hiring but are not as urgently trying to fill many positions. More Americans are rejoining the job search, and immigration has increased this year. Consequently, employers are finding hiring easier, with fewer reports of worker shortages and less pressure to raise wages, which can contribute to inflation significantly.
The Labor Market Landscape
Robert Frick, an economist at the Navy Federal Credit Union, mentioned that they sought a strong but gradually moderating labor market, and the November report reflects that. The Federal Reserve aimed for a cooling job market to slow down the economy and inflation through recent interest rate hikes. With a total of 200,000 monthly, hiring experienced a decrease from about 320,000 in the same period last year. Most of the previous month's job increase was concentrated in specific sectors, with the healthcare industry adding 93,000 jobs, hotels and restaurants adding 40,000, and governments adding 49,000. In contrast, retailers, shipping and warehousing companies, and temporary help agencies all reduced positions.
Despite this, the increase in hiring last month brought the employment rate for Americans to 60.5%, the highest since the pandemic began, although it's still below the pre-COVID level of 61.1%. Meanwhile, wages are growing at a slightly slower but still robust rate. In November, average hourly pay increased by 4% compared to the same month the previous year, matching the rate from the prior month, the smallest since June 2021. Nevertheless, average pay is rising faster than inflation, bolstering consumer spending.
Government data indicates minimal layoffs, even though companies like Panera Bread and Spotify have implemented job cuts. Spotify, the music streaming platform, attributed the need to cut about 1,500 jobs globally to higher interest rates.
Becky Frankiewicz, the president of Manpower Group North America, notes that more employers are reassigning workers to different divisions instead of laying them off. This is because many companies remember the challenges of finding workers during the pandemic and aim to retain their staff. She suggests that everything indicates a gradual transition into a calmer labor market.
Economy Is Still Strong
On the other hand, Aaron Seyedian, the owner of a small cleaning company in Takoma Park, Maryland, mentions that his business is growing, adding five workers to his 30-person staff. Despite the economic changes, Seyedian's company, "Well-Paid Maids," has increased its starting pay from $23 to $24 per hour and hasn't faced difficulties finding new hires. Seyedian believes the economy is still strong, and people continue to spend money.
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The jobs report on Friday is unlikely to change the Federal Reserve's plan to keep interest rates steady for the third consecutive time in the coming weeks. Despite the central bank raising rates 11 times since March 2022, resulting in higher costs for mortgages, auto loans, credit cards, and business borrowing, most economists and Wall Street traders anticipate the Fed's next move to be a rate cut. Traders predicted a 55% chance of a rate cut in March, but now they don't expect the first cut until May, according to the CME FedWatch tool.
According to Guy Berger, the former principal economist at LinkedIn, the strong job market allows the Federal Reserve to maintain high interest rates to combat inflation without significant concerns about causing a recession. Berger suggests that if the economy isn't slowing down, there's no urgency to reduce interest rates quickly.
Recent economic indicators suggest the possibility of a "soft landing." There are fewer job hiring and fewer people changing jobs frequently, which slows inflation and wage growth.
Economists expect a moderation in growth and a continued decline in inflation. Projected to expand at a 1.5% annual rate in the last quarter of the year, the economy is down from the rapid 5.2% pace in the preceding quarter. This moderate growth should help bring down inflation while still supporting modest hiring.
Federal Chair Jerome Powell claimed it was too soon to conclude whether the Fed had increased its benchmark rate to reduce inflation. He added that speculating on the potential date of a rate cut by the Fed is also premature. Powell said that interest rates are "well into" the restrictive area, meaning that they are limiting growth. Many analysts took this comment to say that rate hikes by the Fed were over.
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