US employers likely stepped up hiring in November as they scrambled to meet strong demand for goods and services, giving the economy a strong boost as another challenging year draws to a close, though worker shortages remained a constraint.
The Labor Department’s closely watched employment report on Friday is expected to show a rapidly tightening jobs market, with the unemployment rate seen falling to a 20-month low of 4.5% and wages increasing further. It would come days after Federal Reserve Chair Jerome Powell told lawmakers that the US central bank should consider speeding up the winding down of its massive bond purchases at its Dec 14-15 policy meeting.
“There is clearly massive demand out there for workers. The bigger issue is the supply to meet that demand,” said James Knightley, chief international economist at ING in New York. “If supply doesn’t show any meaningful increase, that would suggest we are going to be in a situation where the labor market is going to continue to add to upside inflationary pressures.”
Nonfarm payrolls likely increased by 550,000 jobs last month after rising 531,000 in October, according to a Reuters survey of economists. That would leave employment about 3.7 million jobs below its peak in February 2020. Estimates ranged from as low as 306,000 to as high as 800,000 jobs.
Strong employment gains would add to solid consumer spending and manufacturing data in suggesting that the economy was accelerating after hitting a speed bump in the third quarter. They would also put an early interest rate increase from the Fed on the table. The Omicron variant of Covid-19, however, poses a risk to the brightening picture.
While little is known about Omicron, some slowdown in hiring and demand for services is likely, based on the experience with Delta, which was responsible for the slowest economic growth pace in more than a year last quarter.
“No company wants to hire more labor if there isn’t going to be a demand for that labor,” said David Wagner, portfolio manager at Aptus Capital Advisors in Cincinnati, Ohio.
For now, the stars are perfectly aligned for November’s employment report. First-time applications for unemployment benefits were near their pre-pandemic levels in mid-November. The ADP National Employment report on Wednesday showed strong private payrolls growth last month.
A measure of manufacturing employment hit a seven-month high, a survey from the Institute for Supply Management showed.
The Conference Board’s labor market differential – derived from data on consumers’ views on whether jobs are plentiful or hard to get – jumped to a record high in November.
Elevated wage pressures
The anticipated drop in the unemployment rate to 4.5% from 4.6% in October would leave the jobless rate down 1.8% points from January. There were 10.4 million job openings at the end of September.
With the labor market tightening, companies are boosting wages. Average hourly earnings are forecast rising 0.4%, matching October’s gain. That would lift the annual increase in wages to 5.0% from 4.9% in October.
But the higher wages are not luring millions of Americans who lost their jobs during the pandemic recession back into the labor force. About 3 million people remain outside the workforce also despite generous federal government-funded unemployment benefits ending in September and schools reopening for in-person learning.
Economists say a strong stock market and rising house prices have increased wealth for many Americans, encouraging early retirements. Households have also accumulated massive savings and there has been a surge in self-employment.
“An unwinding of the forces keeping workers out of the labor force will not occur overnight, and with a sizable chunk of exits concentrated among retirees, the jobs market is set to remain tight,” said Sarah House, a senior economist at Wells Fargo in Charlotte, North Carolina. “Wage pressures are likely to remain elevated and full employment is nearer in sight.”
Employment gains in November were likely led by leisure and hospitality businesses, following a pattern similar to October. Manufacturing likely added 45,000 jobs compared to 60,000 in October, probably held back by a since-ended strike at John Deere, involving about 10,000 workers.
A rebound in government payrolls is expected after three straight monthly declines. Pandemic-related staffing fluctuations have distorted normal seasonal patterns at state and local government education. There have been shortages of bus drivers and other support staff.
“Governments generally cannot easily raise wages or offer hiring bonuses to compete with private sector employers,” said Dean Baker, senior economist at the Center for Economic and Policy Research in Washington. “Over time, they can arrange for needed pay increases, which may lead to a reversal in job loss in November.”