US job growth slows sharply in November

US job growth slowed in November while the unemployment rate fell to its lowest since the pandemic began, painting a complex picture of the labour market’s recovery as the Federal Reserve moves to consider whether to speed up its withdrawal of stimulus support.

Employers in the world’s largest economy added just 210,000 jobs for the month, a steep drop-off from the 546,000 positions created in October and well below economists’ forecasts of 550,000. Since the start of the year, monthly gains have averaged 555,000.

Despite the slower-than-expected pick-up in November, the unemployment rate fell significantly, dipping 0.4 percentage points to 4.2 per cent. Less than six months ago, it hovered closer to 6 per cent.

“With this report, we get more evidence that the economy has re-accelerated from a bit of a slowdown in the third quarter,” said Ellen Gaske, an economist at PGIM Fixed Income.

She pointed to the discrepancy in the two surveys that comprise the jobs report, with one measuring households and the other employers. The “establishment” survey suggested a sharp slowdown in hiring, while the “household” survey showed a gain of 1.1m.

Chart showing the monthly change in non-farm payrolls in the US

Speaking from the White House on Friday, US president Joe Biden touted the unemployment rate’s decline as a sign that the labour market was rebounding rapidly, despite slower job creation. But he also noted the anxiety across America about the cost of living amid high inflation.

“It’s not enough to know we’re making progress,” Biden said. “You need to see it and feel it in your own lives around the kitchen table and in your cheque books”. The US president also said the recent drop in oil prices was a sign that cost pressures would start to abate.

The data released by the Bureau of Labor Statistics on Friday, which included substantial upward revisions to September and October’s job gains for a combined 82,000 additional positions, showed modest improvement in the number of people employed or looking for a job.

The so-called labour force participation rate, which has stagnated since June 2020, ticked up to 61.8 per cent for November from 61.6 per cent in October, although is still about 1.5 percentage points lower than the pre-pandemic threshold.

For “prime age” workers aged between 24 and 54, the employment-to-population ratio, which tracks the percentage of Americans in the age bracket who currently have jobs, improved substantially in November, rising to 78.8 per cent, from 78.3 per cent the previous month. That is the highest level since early 2020.

Childcare issues and Covid-related concerns are among the reasons most often cited for holding back people from returning to the workforce — a dynamic that could be exacerbated by the recent emergence of the new Omicron coronavirus variant.

Loretta Mester, president of the Federal Reserve Bank of Cleveland, warned of this risk in an interview with the Financial Times on Thursday. Jay Powell, chair of the US central bank, also alluded to it during congressional testimony earlier this week, noting another Covid-19 wave could impede the recovery and worsen supply-chain disruptions.

That could mean more muted employment gains, slower economic activity and even greater uncertainty about inflation, which is running at the fastest pace in 30 years, he said.

Employers have been raising wages to attract workers amid an acute labour shortage. Average hourly earnings rose another 0.3 per cent month over month in November, the slowest monthly pace since March, bringing the annual pace of wage growth to 4.8 per cent.

Chart showing the change in average hourly earnings

The BLS pointed to “notable” gains across a number of sectors, including 90,000 jobs added in professional and business services, 50,000 for transportation and warehousing and 62,000 for construction and manufacturing.

Retail employment declined by 20,000, while the number of leisure and hospitality jobs were flat. Employment in that sector remains down 1.3m since before the pandemic. Mining, trade, and public and private education saw little change.

“Rapid progress could get harder both because the jobs may get increasingly harder to fill, and because of the uncertainty associated with the rise of the Omicron variant,” Jason Furman, professor of economics at the Kennedy School of Government at Harvard University and a former adviser to Barack Obama, wrote in a report with Wilson Powell for the Peterson Institute for International Economics.

“Nevertheless, the fact that the economy continued a relatively rapid pace of job growth after the rise of the Delta variant suggests that continued economic progress is likely.”

Chart showing a shortfall in non-farm payrolls

The latest jobs report, which showed 3.9m more Americans are still out of work than before the pandemic, came just days after Powell made clear the central bank is assuming a more aggressive stance to combat inflation, which he acknowledged had broadened throughout the economy in recent months and raised the spectre of a much more persistent problem.

Powell signalled this week that he may support speeding up the central bank’s withdrawal of its enormous stimulus programme — a process it began just a few weeks ago at a pace that would end bond-buying altogether in June.

A faster exit, which many Fed officials expressed public support for this week, is likely to mean earlier-than-expected interest rate increases, a possibility that jolted financial markets and prompted economists to ratchet up their bets for a rate rise next year.

Some Wall Street analysts now expect three interest rate increases next year, with the first adjustment coming as early as May.

Economists at Goldman Sachs affirmed their prediction on Friday that the Fed will double the pace of tapering at this month’s policy meeting and raise interest rates in June 2022.

Market reaction to the jobs report was muted, with US government bonds across most maturities selling off modestly, indicating investors’ belief that the weaker-than-expected gains will not change the Fed’s course too significantly. US stocks were trading lower.

Additional reporting by James Politi in Washington and Kate Duguid and Eric Platt in New York

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