What’s going on under the surface of the November 2022 jobs report

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A lot of jobs were created in November. Why are we still talking about a recession?

The Bureau of Labor Statistics reported on Friday that employment increased by 263,000 jobs in November, a number higher than expected.

But for the Federal Reserve, the better-than-expected number isn’t good news. In a moment when the central bank has concluded the biggest problem in the economy is inflation, they see the hot labor market as something that needs to be cooled.

In the Fed’s eyes, the economy is out of balance: There are too many job openings compared to the number of unemployed workers, which puts pressure on employers to raise wages, causing prices — especially in the service sector — to rise.

At the same time, the underlying growth of the economy has likely slowed down, and the pace of job growth has declined since earlier this year.

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A number of economists and business leaders have forecast that the economy will fall into recession sometime next year, and the Fed has forecast has unemployment will rise from its current 3.7 percent to 4.5 percent sometime in 2024. Federal Reserve Bank of New York President John Williams has said unemployment could go as high as 5 percent.

Friday’s report, which also included stronger-than-expected wage growth, sent down stock prices and the price of U.S. government debt, as traders took it as an indication that the Fed will continue to raise rates in order to combat inflation.

Grid Politics Editor Leah Askarinam asked Domestic Economics Reporter Matthew Zeitlin about the October jobs report.

Leah Askarinam: It seems like everywhere I look, someone is speculating that a recession is imminent. What does this jobs report indicate about the health of the economy?

Matthew Zeitlin: This jobs report shows that the economy is not currently in a recession. The last three months have averaged just over 270,000 net new jobs created, a figure that President Barack Obama or Donald Trump would have been thrilled with. These numbers are consistent with an economy that’s expanding, albeit at a slower pace than the immediate post reopening boom of earlier this year.

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Recession worries persist, however, because the Fed’s interest rate hikes will likely continue and, in the past, this kind of campaign against inflation has led to recessions. There’s evidence too that consumption — people buying stuff — and investment by businesses is slowing down dramatically, which typically is an indication of a weakening economy.

LA: Wait, does that mean that more jobs and rising wages are bad?

MZ: Looking at the economy through Powell’s lens, wage growth is actually a problem that threatens the overall health of the economy. In Powell’s view, growing wages in the service sector — think restaurants, hotels, flights, healthcare — are not “consistent with 2 percent inflation over time.”

While Powell has suggested this could be achieved by bringing down the ratio of job openings to unemployed workers, the Fed itself has projected an increase of the unemployment rate to as high as 4.4 percent in 2024, while the president of the Federal Reserve Bank of New York has estimated that it could get as high as 5 percent by the end of next year.

The market probably responded more strongly to above-expectations growth in average hourly earnings than any specific jobs number in the report.

LA: What about inflation? Is there anything here that’s indicating inflation will slow down substantially soon?

MZ: Not as much as the Fed would like. The Fed wants to see wage growth slow dramatically, as Jerome Powell put it in a speech earlier this week: “In the labor market, demand for workers far exceeds the supply of available workers, and nominal wages have been growing at a pace well above what would be consistent with 2 percent inflation over time.”

There’s not much here showing that wage growth will slow soon or that the labor market is cooling off much.

LA: What about the Fed’s latest series of rate hikes? How do those fit in here?

MZ: You can see pockets of the economy clearly affected by interest rate hikes — employment in homebuilding has shrunk, as has employment in car and auto parts dealerships. These are sectors that are pretty closely linked to interest rates. When interest rates go up, home construction and homebuying go down, and cars get more expensive.


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Some sectors of the financial industry also had declining employment, which is likely a downstream effect of the mortgage market freezing up thanks to interest rate hikes.

So far, the Fed this year has raised interest rates at six consecutive policymaking meetings and is expected to do so again later this month. In order to bring down price growth, Powell has said, the economy will “require a sustained period of below-trend growth,” which will almost certainly translate to less job growth and higher unemployment across the economy — but not yet.

LA: What industries are lagging?

MZ: We’re seeing a transition away from the blowout spending on goods that marked the economy of 2020 and 2021. Employment in warehousing and storage, one of the standout sectors of 2021, was down by over 12,000 jobs. Department stores shed almost 22,000 jobs, and retailers overall lost almost 30,000 jobs.

LA: There’s been a lot of news about layoffs in the technology sector specifically. Did that show up anywhere in this job report? Is it affecting the overall economic picture?

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MZ: While tech layoffs, especially those directed by a certain South African car manufacturing CEO, get a lot of attention, they haven’t yet made a major dent in the macroeconomic picture. There was a slight decrease in the “telecommunications” sector of just over 2,000 jobs.

Thanks to Lillian Barkley for copy editing this article.

  • Matthew Zeitlin
    Matthew Zeitlin

    Domestic Economics Reporter

    Matthew Zeitlin is an economics reporter at Grid focused on the domestic impact of major stories such as coronavirus, the supply chain and economic volatility.

  • Leah Askarinam
    Leah Askarinam

    Senior Editor

    Leah Askarinam is Senior Editor at Grid, overseeing coverage of politics, misinformation and the economy.

TOPICS

Inflation