WASHINGTON, Dec 2 (Reuters) – U.S. job growth was likely the weakest in nearly two years in November as growing fears of a recession dampened demand for labor, which could give the Federal Reserve confidence to start easing the pace of its interest rate hikes this month.
Friday’s closely watched Labor Department jobs report, which is also expected to show continued moderation in wage gains over the past month, would follow Thursday’s announcement of a slowdown in inflation in October.
But the labor market remains tight, with 1.7 job creations for every jobless worker in October, keeping the Fed on its monetary tightening path at least until the first half of 2023. The strength of the labor market is also one of the reasons why economists think a recession is expected soon. the year would be short and shallow.
“It’s kind of like it’s good news but not great news. The labor market is still very strong and still very tight,” said Agron Nicaj, a US economist at MUFG in New York. “The Fed might slow the pace of rate hikes, but they’re not at a point where they’re going to completely stop.”
The business establishment survey is expected to show nonfarm payrolls rose by 200,000 jobs last month, according to a Reuters poll of economists, the smallest number since December 2020, after rising by 261,000 in October. . Estimates ranged from 133,000 to 270,000.
The Reuters poll, however, came ahead of a report from the Institute for Supply Management on Thursday, which showed manufacturing contracted in November for the first time in 2½ years, with a measure of factory employment down sharply. . That prompted some economists to revise their November payroll forecasts downward.
October payrolls could be revised down after the household survey, from which the unemployment rate is derived, showed a loss of 328,000 jobs that month, which economists say could have an impact on the number of jobs for November.
Job growth has averaged 407,000 jobs per month this year, down from 562,000 in 2021. Fed Chairman Jerome Powell said on Wednesday that the U.S. central bank may reduce the pace of its rate hikes “from December”.
Fed officials meet on December 13-14. The Fed raised its key rate by 375 basis points this year, from near zero to a range of 3.75% to 4.00% in the fastest rate hike cycle since the 1980s as it fights against high inflation.
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Economists said most of the slowdown in hiring was attributable to large companies. Tech companies including Twitter, Amazon (AMZN.O) and Meta (META.O), Facebook’s parent company, have announced thousands of job cuts.
Economists said these companies were downsized after overhiring during the COVID-19 pandemic. They noted that small businesses remained desperate for workers.
There were 10.3 million job openings at the end of October, many of them in the leisure and hospitality sectors as well as health care and social assistance.
“The S&P 500 companies aren’t going to drive job growth, it’s going to be primarily the small business sector,” said Brian Bethune, professor of economics at Boston College.
The unemployment rate is unchanged at 3.7%, which is consistent with a still tight labor market. Average hourly earnings are expected to rise 0.3% after rising 0.4% in October. This would reduce the annual wage increase to a still high 4.6%, from 4.7% in October. Wage growth peaked at 5.6% in March.
“This is an uncomfortably high pace for the Fed and not in line with the 2% inflation target, although officials can take comfort in the downward trajectory of the annual pace over the past eight months. “said Sam Bullard, senior economist. at Wells Fargo in Charlotte, North Carolina.
Data on Thursday showed the Personal Consumption Expenditure (PCE) price index, excluding the volatile food and energy components, rose 5.0% on an annual basis in October after rising 5.2% in September.
Wage gains are helping consumers weather the inflationary storm, keeping the economy on a steady growth path and fueling cautious optimism that the country can avoid a recession altogether.
“I still believe the economy will tip into a short, shallow recession in mid-2023 based on eroding labor market growth, but the likelihood of no recession is now higher,” said Steven Blitz, chief U.S. economist at TS Lombard in New York.
Reporting by Lucia Mutikani; Editing by Andrea Ricci
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