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US: Employment Shows Further Signs of Cooling, But Elevated Wages Will Keep Fed on the Defensive 

The U.S. economy added 263k jobs in November, coming in above the consensus forecast of 200k. Overall, revisions to the two prior months were negative, subtracting 23k from the previously reported figures.

Employment gains on the service-side (+184k) were largely concentrated in health care & social assistance (+68k), leisure & hospitality (+88k), other services (+24k) and information (+19k). Meanwhile, retail (-29.9k) & wholesale (-15.1k) trade lost jobs on the month. Hiring in professional & business services (+6k) was also noticeably weak, though this is partially related to a pullback in hiring of temporary help services (-17.2k). Goods producing industries (+37k) had another solid month, with gains concentrated across both construction (+20k) and manufacturing (+14k). The public sector added 42k jobs in November.

In the household survey, civilian employment recorded another month of declines, falling by 138k, while the labor force shed 186k workers. As a result, the unemployment rate remained unchanged at 3.7%. The participation rate edged lower by 0.1 percentage point (pp), falling to 62.1% and is now 0.1 pp below where it was at the beginning of the year.

Average hourly earnings rose 0.6% month-over-month (m/m) – an acceleration from the 0.5% m/m gain recorded in October. Compared to November 2021, wage growth is up 5.1%. Aggregate hours worked declined by 0.2% m/m.

Key Implications

Non-farm employment continues to show some signs of slowing, having now fallen short of its three-month moving average in each of the last four months. Moreover, the pullback in hiring across select service industries alongside the continued weakness in the household measure of employment suggests labor demand is starting to cool – albeit from elevated levels.

After having shown some tentative signs of easing, average hourly earnings have accelerated sharply in recent months, with the year-ago measure up 5.1% and the three-month (annualized) growth rate sits even higher at 5.8%. With job openings still historically elevated and growth in the labor force appearing to have stalled, wage growth is likely to continue to remain elevated until we see a meaningful normalization in labor demand.

In a speech earlier this week, Fed Chair Powell hinted that the FOMC may start to dial back on the pace of rate hikes at its next meeting later this month. While we believe the time has come for the Fed to pivot, today’s employment report reaffirms the view that the Fed’s job is far from done. More rate hikes will be required through next year to restore price stability and normalize the current imbalances in the labor market.

TD Bank Financial Group
TD Bank Financial Grouphttp://www.td.com/economics/
The information contained in this report has been prepared for the information of our customers by TD Bank Financial Group. The information has been drawn from sources believed to be reliable, but the accuracy or completeness of the information is not guaranteed, nor in providing it does TD Bank Financial Group assume any responsibility or liability.

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