The labor market continues to be resilient in the face of unprecedented interest rate increases, but we may just be some ways away from seeing the total impact of the Fed’s latest policies on the broader economy.
There were 263,000 nonfarm payrolls added in November, according to the latest release from the Bureau of Labor Statistics (BLS), out last Friday. That’s higher than what economists surveyed by Bloomberg expected — a median forecast of 200,000 jobs added. October’s job creation was revised from 261,000 to 284,000.
The overall US unemployment rate stayed the same in November at 3.7%, matching expectations from economists surveyed by Bloomberg and the same as October’s 3.7%. Meanwhile, the participation rate, or the percentage of people in the job market was 62.1% for November, still below pre-pandemic levels. The slump indicates that there aren’t as many willing and able workers joining the workforce, therefore setting up for a tighter labor market.
Moreover, the speed and absolute level of the Fed’s monetary policy indicate that we may be headed toward a necessary recession. While a ‘soft-landing’ remains a form of economic nirvana, the persistent levels of inflation embedded throughout the economy suggest a need for reduced economic activity to cool inflation to a 2% level – this unfortunately includes job loss, and is expected based on the Fed’s forecasts.
Meanwhile, the private sector employment increased by 127,000 in November compared to 239,000 jobs the month before, according to the November ADP National Employment Report, which accounts for non-farm, private employees but not government workers, who are covered by the BLS.
The more subdued gain in private sector jobs already suggests the labor market may be beginning to feel the effects of the Fed’s constrictive policies. As the Fed’s policy further impacts the labor market and the overall, broader economy, we expect similar defensive actions by all sectors, including tech.
While unemployment is a good bellwether for economic health, it is by no means a crystal ball. Many economists and industry professionals are aligned that consumer spending, balance sheets and corporate earnings should all inform important investment decisions at this time.
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