U.S. companies are presented by the U.S. Bureau of Labor Statistics (BLS) as having demonstrated economic resilience in November, reportedly adding more than 250,000 jobs and delivering higher average wages, despite the current high-interest rate recessionary environment.
The BLS reported on Friday that the U.S. economy added 263,000 jobs in November, roughly in line with average growth over the prior three months. The unemployment rate remained unchanged at 3.7%. The figure comes from its Establishment survey.
The increase touted is in nonfarm payrolls, however, and ignores the Household data survey results, which show that there was actually a plunge in the number of people employed. It tumbled by 138,000 (tracked by the Household survey).
“Monthly job growth has averaged 392,000 thus far in 2022, compared with 562,000 per month in 2021,” the Labor Department said. “In November, notable job gains occurred in leisure and hospitality (+88,000), health care (+45,000), and government (+42,000). Job declines were felt in retail trade (-30,000) and in transportation and warehousing (-15,000).
The figures trumpeted by the BLS, according to trader and investment analyst Daniel Ivandjiiski, misrepresent the nation’s actual employment status, and “roughly a third” of the November 2022 payrolls report was based on “modeling and estimates.”
This report reflects substantially fewer survey responses, with an Establishment survey response rate of only 49%, much lower than the 70-75% rate typical in November.
Despite major layoffs in the tech industry over the last several months, the BLS said the unemployment rate was unchanged in November at 3.7%, fluctuating within a narrow range of 3.5% to 3.7% since March.
One explanation could be that more people lost their higher-paying, full-time jobs, causing them to switch to lower-paying, benefits-free, part-time jobs.
The BLS reported average hourly earnings grew 5.1% in November from a year earlier, rising by 18 cents, or 0.6%, to $32.82.
Former Fed staffer Julia Coronado suggests that this data likely represents an alternative explanation for the supposed hourly wage increases. She wondered “if we are not, in fact, seeing a spike in hourly income courtesy of lump sum severance payments.”
“A stronger-than-expected jobs report illustrates the wage problem that the Federal Reserve is facing,” independent advisor alliance chief investment officer Chris Zaccarelli said in an email. “Average hourly earnings continue to climb, and that wage pressure, in conjunction with low unemployment, will keep inflationary pressures elevated.”
With employers paying higher wages to retain talent, the Federal Reserve could find itself in a precarious situation as it seeks to bring inflation down to its 2% goal. The monetary phenomenon that the Fed is trying to avoid is a wage-price spiral.
A wage-price spiral occurs when workers demand higher wages to keep up with rising living costs. This, in turn, causes businesses to raise their prices to offset their rising wage costs, leading to a self-reinforcing loop of wage and price increases. The increased wages result in a higher cost of goods and services and thus continues as one factor induces the other.
On Wednesday, Fed Chairman Jerome Powell highlighted the importance of price stability as the bedrock of the economy during a speech at the Brookings Institution in Washington, D.C.
“Without price stability, we will not achieve a sustained period of strong labor market conditions that benefit all,” Powell said during Wednesday’s speech.
To combat inflation, which had its highest reading in June at 9.2%, the Federal Reserve has raised interest rates six times this year: +0.25% in March, +0.50% in May, and +0.75% in June, July, September, and November.
“For those that believe the Fed will be cutting rates next year, we would remind them that inflation wasn’t transitory, and this jobs report is another example of why the Fed is going to be fighting inflation for a much longer period than many currently expect,” said Zaccarelli.
The weakness expressed in retail trade could be an early sign that consumer spending has been maxed out. Retail trade employment has fallen by 62,000 since August, according to BLS.
This is supported by data showing that a typical consumer’s personal savings balance has essentially been wiped out while credit card debt continues to rise.
The standard cost of living has certainly risen from the days in which Fed chair Powell and Treasury Secretary Jennet Yellen claimed inflation was transitory. On Wednesday, Yellen proposed that the monthly employment report and inflation numbers (CPI) were the most essential data points that officials continue to track and monitor.
In October, year-over-year inflation was reported at 7.7%, reflecting a monthly increase of 0.4%, according to October’s BLS report. This was down from the yearly high of 9.2% reported in June.
To ensure that inflation is heading toward the Fed’s 2% target rate, monetary and financial authorities closely track the economic strength of consumers and employers.
Even as the Fed attempts to reduce inflation through its interest rate policy, Secretary Yellen stated that significant layoffs, while important, are not necessary to ensure the Fed’s success.
“What you’re seeing is some writing down of future growth that is inducing firms to rethink people they really need to hire,” Yellen said. “So, we’ve seen the beginnings of job openings fall off a little bit.”
Analysts predict that December’s federal open market committee (FOMC) meeting, scheduled for December 14, will bring another +0.50% interest rate increase.
