Businesses continue to defy economic headwinds and Fed crackdown to hire

WASHINGTON (TND) — The U.S. labor market is continuing to be a strength of an economy that is fighting off stubborn inflation and a central bank that has ratcheted up interest rates at a record-setting pace since the beginning of the year.

Unemployment remains near 50-year lows at 3.7% and companies added 263,000 jobs in November, according to a Friday report from the Labor Department. Job gains beat economists’ expectations and will likely be a signal to the Federal Reserve to continue restricting its monetary policy.

“Underscoring the unique current economic environment, a slower pace of job growth could be deemed a positive development for the economy in that it should help reduce inflation pressures stemming from the jobs market. But the Fed's efforts to curb demand have yet to make much of a dent on this front,” Wells Fargo analysts wrote in a note Friday.

Wall Street reacted quickly and dipped Friday morning after the better-than-expected report as investors had fears of an aggressive Fed continuing .75-point rate hikes fueled by a continued hot jobs market and data showing wages rose again.

Wages were up 5.1% last month when compared to the year before, higher than 4.9% in October and counter to the expectation of a slowdown.

The Fed has been keeping a close eye on the labor market, where intense competition for workers has forced businesses to raise wages to compete. Those gains, which have not kept pace with inflation, help people deal with increased prices but prompt worries about a “wage-price” spiral where businesses would pass the added costs of paying employees onto consumers and further accelerate inflation.

“The labor market continues to offer opportunities for workers to find higher paying jobs or receive raises, but it’s largely dependent on the industry,” said Giacomo Santangelo, senior economist at Monster. “Overall, we’re continuing to see wages grow far slower than the cost of living. Regardless of what some may think about the economy as a whole, the reality is many Americans may be forced to go into debt to buy necessities.”

Fed chairman Jerome Powell hinted earlier this week that the central bank could soon end its record streak of .75% increases, possibly at the next Federal Open Market Committee meeting that starts Dec. 13.

“Thus, it makes sense to moderate the pace of our rate increases as we approach the level of restraint that will be sufficient to bring inflation down. The time for moderating the pace of rate increases may come as soon as the December meeting," Powell said.

Some high-profile companies have made layoffs or instituted hiring freezes in recent weeks, including Amazon, Meta, Twitter and Walmart. Despite the announcements of cuts, it hasn’t loosened the job market as a whole to this point.

“We read all this stuff in the papers about all of the layoffs and that is not showing up in our data at all,” said Rucha Vankudre, Lighcast senior economist. “Layoffs specifically we wouldn’t see but you would expect that if these people, if these companies were getting rid of all these people and it was actually effecting the economy at large, you would not expect to see growing jobs numbers.”

At the end of October, there were 10.3 million job openings in the U.S., or 1.7 jobs available for every American looking for work.

Some economists warn there is still high risk for a bigger cooldown in the coming months. Multiple banks and investment firms have predicted the U.S. will slide into a recession sometime next year.

“The potential for widespread harm is high, especially as more companies adjust to higher interest rates and prepare for the coming recession,” Santangelo said. “There were already more than 76,000 people laid off in November and announcements of hiring freezes across many industries.”

Powell and the Fed have been trying to steer the economy into a “soft landing” where inflation eases without throwing the economy into a recession. Economists have long been skeptical that was an achievable task, but Powell is still hopeful.

"I do continue to believe that there’s a path to a soft, or softish landing. I do believe that," Powell said earlier this week, acknowledging the path is narrow.