U.S. employment growth slowed considerably in November amid job losses at retailers and in local government education, but the unemployment rate plunged to a 21-month low of 4.2 per cent, suggesting the labour market was rapidly tightening.
The four-tenths-of-a-percentage-point drop in the jobless rate from October reported by the U.S. Labour Department in its closely watched employment report on Friday occurred even as 594,000 people entered the labour force, the most in 13 months. Workers put in more hours, boosting aggregate wages, which should help to underpin consumer spending.
“Don’t be fooled by the measly payroll jobs gain this month because the economy’s engines are actually in overdrive as shown by the plunge in joblessness,” said Christopher Rupkey, chief economist at Fwdbonds in New York.
The survey of businesses showed non-farm payrolls increased by 210,000 jobs, the fewest since last December. But the economy created 82,000 more jobs than initially reported in September and October, a sign of strength. That left employment 3.9 million jobs below the peak in February, 2020.
Despite November’s slowdown in hiring, which also reflected a small gain in the leisure and hospitality industry, 6.1 million jobs have been added this year. The unemployment rate has declined by a whopping 2.1 percentage points since January.
U.S. President Joe Biden, whose approval rating has fallen amid angst over high inflation, said the economy was stronger than it was before the COVID-19 pandemic and that the country could “look forward to a brighter, happier new year ahead.”
“But I also know that despite this progress, families are anxious about COVID. They’re anxious about the cost of living, the economy more broadly,” Mr. Biden said in a speech about the economy. “I want you to know I hear you, it is not enough to know that we’re making progress.”
Economists say the economy is very close to maximum employment, making an early interest-rate increase from the Federal Reserve possible.
Fed chair Jerome Powell told lawmakers this week that the U.S. central bank should consider speeding up the winding down of its massive bond purchases at its Dec. 14-15 policy meeting.
“The Fed will see the report as more than adequate to stay on course to accelerate tapering of asset purchases at the December meeting, implying an end to purchases in March,” said Andrew Hollenhorst, chief U.S. economist at Citigroup in New York. “Moreover, an unemployment rate that is poised to fall below 4.0 per cent perhaps in the coming months keeps a first Fed rate hike in June or even earlier firmly on the table.”
Economists polled by Reuters had forecast that payrolls would advance by 550,000 jobs. Hiring continues to be hampered by worker shortages. There were 10.4 million job openings at the end of September.
U.S. stocks were sharply lower. The dollar was flat against a basket of currencies. U.S. Treasury yields fell.
Employment growth was held back by a decline of 20,400 jobs in the retail sector. State and local government education employment fell by 12,600 jobs. That led to a drop of 25,000 in overall government jobs, the fourth straight monthly decrease.
Pandemic-related staffing fluctuations have distorted normal seasonal patterns in state and local government education.
The leisure and hospitality sector added only 23,000 jobs compared to 170,000 in the previous month. Professional and business services payrolls increased by 90,000 jobs. There were also solid gains in transportation and warehousing as well as in construction. Manufacturing employment increased by 31,000 jobs.
November’s modest job growth did little to temper expectations that the economy was poised for stronger growth this quarter after hitting a speed bump in the third quarter.
A measure of services sector activity scaled a fresh record high in November.
U.S. consumer spending and manufacturing activity have been strong. Spending should remain supported by rising wages as companies scramble for scarce workers. Average hourly earnings increased 0.3 per cent in November, keeping the annual increase in wages at 4.8 per cent. The average workweek climbed to 34.8 hours from 34.7. As a result of the longer workweek, aggregate wages rose 0.7 per cent.
But the spread of the new, highly contagious Omicron variant of COVID-19 poses a risk to the brightening picture. While little is known about the impact of Omicron, some slowdown in hiring and demand for services is likely, based on the experience with the Delta variant, which was responsible for the slowest economic growth pace in more than a year last quarter.
While labour supply remains tight, there are signs that some of the millions of Americans who lost their jobs during the pandemic-induced recession are wading back into the labour force.
The smaller survey of households, from which the unemployment rate is derived, showed the labour-force participation rate, or the proportion of working-age Americans who have a job or are looking for one, was 61.8 per cent. That was the highest level since March, 2020, and was up from 61.6 per cent in October.
The increase was concentrated in the 20-54 age group. About 274,000 women aged 20 and older joined the labour force. The work force remains 2.4 million below its prepandemic level.
“If more people are starting to look for work again, this would allow for stronger near-term hiring,” said Gus Faucher, chief economist at PNC Financial in Pittsburgh.
The household survey also showed a rise of 1.14 million in the number of people employed. The employment-to-population ratio, viewed as a measure of an economy’s ability to create jobs, jumped to 59.2 per cent, also the highest since March, 2020, from 58.8 per cent in October.
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