Unemployment Rate Drops in a Goldilocks Jobs Report

Unemployment Rate Drops in a Goldilocks Jobs Report

U.S. employers continued to create jobs at a healthy clip in November, according to data released by the Labor Department Friday, raising hopes for a recession-free soft landing for the economy as it continues to recover from an intense bout of inflation over the last two years.

Payrolls increased by 199,000 during the month and the unemployment rate dropped to 3.7%, with both readings beating expectations. Wages continued to grow, even as half a million people entered the labor force.  

The numbers point to a job market that has slowed a bit but remains robust – offering what amounts to a Goldilocks set of data for the Federal Reserve as it mulls interest rate policy at its final meeting of the year next week.

Some key details: The job growth numbers were boosted by the end of the auto strike last month, which put about 30,000 people back to work. Most of the remaining growth came from the healthcare and government sectors.

Other sectors were sluggish or even negative. Retail lost 38,000 jobs, while construction and financial services were basically flat.

Average hourly earnings rose 0.35% on a monthly basis and 4% on an annual basis. With inflation running at 3.2% on an annual basis, that means that workers saw increases in real wages, even as the annual growth rate dropped slightly from the month before.

The job market has seen gains for 35 straight months. Including revisions, the monthly gains have averaged 204,000 over the last three months, more than enough to maintain the current unemployment rate. Acting Secretary of Labor Julie Su noted that the unemployment rate has now been under 4% for 22 months straight. “Not since 1970 has unemployment been this low for this length of time, demonstrating once again that Bidenomics is working,” she said in a statement.

What the experts are saying: “It's the little engine that could, and this little locomotive keeps a chugging along,” wrote University of Michigan economist Justin Wolfers. “If I had asked you a year ago to sketch what you thought a soft landing might look like, it's likely you would have pretty much drawn the current economic data.”

Economist Mike Konczal of the Roosevelt Institute, a left-leaning think tank, added some context, connecting the recent inflationary period to the dislocations associated with closing and then reopening the economy during the pandemic. “[T]his print is basically exactly what you'd want and expect to see from a soft landing, where inflation is falling because the difficult reopening process is over,” he wrote.

Daniel Zhao, lead economist at job ratings site Glassdoor, said the “job market continues to be resilient after a year of dodging recession fears.” Some analysts were worried that the unemployment rate would edge higher in November, so “the improvement in unemployment was a welcome relief.”

All eyes on the Fed: Many analysts expected to see weaker job growth numbers in November, which spurred hopes that the Fed would lower interest rates sooner rather than later to boost a lagging economy. But the solid report suggests that the Fed’s stated intent of keeping rates “higher for longer” will likely carry over into 2024, and it seems likely that central bank officials will hold rates steady next week.  

At the same time, there is nothing in the report that will push bank officials to contemplate another rate hike. “We think the Fed will have no problem at all with this report,” said JPMorgan’s Michael Feroli.

Economist Nick Bunker of the jobs site Indeed said the data offers good news for both the Fed and workers. “This is encouraging for central bankers and the people getting real wage gains,” he said. “It’s helping people spend more which is good for GDP growth and for everyone. It’s a win-win for a variety of audiences.”

So while it’s highly unlikely that the Fed will raise rates, it remains an open question of how long it will take for bank officials to start cutting them next year.

The bottom line: The U.S. economy continues to hum along, with job growth downshifting from extraordinary highs in 2021 and 2022 to more sustainable – but still healthy – levels heading into 2024.