Job Market Remains Tight Despite the Fed's Efforts

December 5, 2022

If you pay attention to the headlines, it seems like a major employer is announcing new layoffs every day. Big tech companies like Amazon, Meta, Snap and Twitter are among the Silicon Valley giants who are scaling back their workforces.

However, rather than getting caught up in one sector, let’s focus on the entire U.S. employment picture. In doing so, we will see that the job market is actually still quite strong — at least according to the latest jobs report.

Breaking down the latest jobs report

The U.S. Bureau of Labor Statistics (BLS) releases the Employment Situation Summary, also known as the jobs report, on the first Friday of every month. This is among the most important economic releases. The report is based on surveys of households and employers. It estimates the number of people on payrolls in the U.S. economy, the average number of hours they worked weekly, and their average hourly earnings, along with several versions of the unemployment rate.

The headline jobs report for November that was released on Friday, continues to look very strong. The U.S. unemployment rate held steady at 3.7%, signaling that the job market remains too strong despite some signs that it may begin to cool soon. Employers added more jobs than forecasted for November. Non-farm payrolls increased by 263,000 for the month, beating an estimated 200,000 payroll gain. Hourly pay accelerated 0.6%, which was the most since January. Hourly pay is up 5.1% from a year ago. However, the details of the report suggest the job market is showing signs of weakening.

Job gains were led by growth in leisure and hospitality, healthcare, and government.  Meanwhile the sectors that cut staff were retail, transportation and warehousing, and temporary staffing agencies.

 

The jobs report is made up of two surveys. One survey is conducted for households, and another for businesses.  The business employment survey showed very strong hiring for the month. The household employment survey indicated lower employment for the second month in a row, which is also being driven by labor participation. Individuals ages 25-64, who are seeking employment dipped lower to 62.1%, which is a three month consecutive decline.

What does the report mean for The Fed?

The Friday jobs report does not give the Federal Reserve clear signals on where the labor market is headed. Reports earlier last week showed that job openings have eased in October, and continuing claims for unemployment insurance have steadily climbed in the last few weeks.

Fed Chairman Jerome Powell noted last week how wage growth tends to keep inflation high. This report shows that the labor market is strong, giving the Fed some room to maneuver with raising interest rates to cool off demand. Officials signaled they may start to moderate their interest rate hikes as soon as December, suggesting a 0.5% increase, which would be a downward shift from the 0.75% increases from the prior four meetings. The Fed will update other economic releases, including the November inflation readings, before their next meeting, which will help officials ultimately decide the next interest rate move this month. 

As we finish out the volatile year full of surprises, we will continue to look at trends and themes that will shape the new year. The job market has stayed resilient despite the rapid rise in interest rates and inflation, and we will continue to remain fully diversified and focused on the long-term view of the economy that affects your positions within your portfolio.

If you would like to review your year-end goals to ensure you are on track heading into the the new year, contact us for a visit.  Your financial success matters to us.