The economy surpassed expectations in November and added 199,000 jobs, the Bureau of Labor Statistics reported Friday, a sign the labor market is holding up despite the Federal Reserve‘s efforts this year to bring down inflation through interest rate hikes.
The unemployment rate fell two-tenths of a percentage point to 3.7%, a low rate by historical standards.
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“Overall, the labor market remains strong, with job growth still robust and the unemployment rate at extraordinarily low levels,” Rubeela Farooqi, the chief U.S. economist for High Frequency Economics, said in a note on the data release.
The continued strength of the jobs market has provided a boost to the White House, which has been working to claim credit for President Joe Biden.
November’s jobs numbers were elevated by the return of striking autoworkers after the conclusion of negotiations between the United Auto Workers and the “Big Three” automakers at the very end of October. That added 30,000 jobs to the headline payroll number, the bureau said.
Friday’s report suggests the jobs market is maintaining strength to end 2023, even after being buffeted by several factors over the year, including the strikes, increased international tensions, and, most significantly, the Fed’s campaign to drive down inflation.
Growth has slowed over the year, but payroll growth has been averaging over 200,000 for the past three months — about twice the pace needed to keep unemployment trending down.
Annual inflation, as tracked by the consumer price index, has fallen from a peak of about 9% in June 2022 to just 3.2% in October.
Still, it is running hotter than the Fed’s preferred 2% level. And the central bank has had to take fairly aggressive measures, raising its short-term interest rate target to 5.25% to 5.50%, which, in turn, has driven up rates on credit card debt, auto loans, and mortgages. Many of those changes have been disruptive, especially to the housing market. As of this week, the average rate on a 30-year, fixed-rate mortgage was 7.04%, according to Mortgage News Daily, which tracks daily changes in rates. Since mid-October, mortgage rates have fallen by nearly a full percentage point.
Now, though, most economists expect that the Fed will soon begin lowering rates to prevent the country from falling into recession.
On the margin, the data on wages from Friday’s report will likely lead Fed officials toward cutting rates sooner. Average hourly earnings growth had soared over a 5% annual rate last year, but has trended down toward 4% to end 2023, alleviating fears at the central bank that a hot labor market is putting upward pressure on inflation.
Indeed, the resilience of the labor market as inflation and wage growth have come down has provided renewed hope that the economy will be able to avoid a downturn. Late last year, some economic models were predicting there would be a recession by now. Instead, GDP growth has increased this year.
A revision to the third quarter GDP projections released last month showed that economic growth expanded at a 5.2% seasonally adjusted annual rate in the third quarter of this year, the strongest growth since the pandemic rebound and, before that, 2014.
GDP growth was 2.1% in the second quarter and 2.2% in the first quarter of this year. The Atlanta Fed’s “GDP Now” tracker predicts that GDP growth in the final quarter of this year will be 1.3.
Still, many economists are expecting a slowdown next year in the labor market and the overall economy. About 41% of economists surveyed by the Federal Reserve Bank of Philadelphia predict GDP will decline in the first quarter of 2024.
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“Two-plus years of falling real income have consumers walking a financial tightrope, and the safety net of a still-tight labor market may be the only thing between a slip-up and a plunge into a recession,” said Sean Snaith, economics professor at the University of Central Florida and director of UCF’s Institute for Economic Forecasting.
“The anxiety of watching this high-wire act will be a persistent companion over the next year,” he added.
