Labor market hiring is slower but healthy with strength in a few key sectors

The November jobs report, to be released Friday morning, will provide the latest snapshot of the state of the jobs market heading into 2024, with economists predicting 190,000 new jobs, up from 150,000 in October. Economists are also forecasting that the unemployment rate will hold at 3.9 percent, but are watching closely for any pickup.

“The unemployment rate has been rising for months, the question is whether this is a trend that will continue,” said Nick Bunker, economic research director at the jobs site Indeed. A rising unemployment rate could be a warning sign, he added.

The unemployment rate, which fell to lows not seen since the late 1960s in April, has increased by half a percentage point since then with about 849,000 more workers reporting that they are unemployed. That softening is likely happening for a variety reasons that should not cause concern about a broader downturn for now, economists say. More workers are entering and reentering the labor market. Also, recently a wave of strikes, notably in the auto-manufacturing and entertainment industries, which were resolved, have created some labor market slack.

Some of that slowdown also appears to be in reaction to the Federal Reserve’s interest rate hikes. The central bank, which has lifted interest rates to the highest level in 22 years to bring down inflation, so far has achieved its goal of easing demand in the labor market and wage growth enough to bring down inflation, to 3.2 percent over the year in October, without triggering catastrophic job losses so far. Economists caution it remains too early to see the full impact of the rate hikes.

Investors are also optimistic that the softening in the labor market is enough to keep the Fed from raising rates again, which has spurred enthusiasm in the financial markets. Friday’s jobs report will provide one of the last snapshots of the labor market before the Fed meets on Dec. 12 and 13 to consider policy on interest rates, which are designed to curb inflation.

By most measures, the labor market remains just as strong or stronger than the years leading up to the pandemic, a period marked by low unemployment and hardy job growth. The percentage of Americans who are unemployed has been below 4 percent for nearly two years, a sign that the labor market remains unusually favorable for workers, giving them leverage to demand raises and switch into better jobs. Layoffs also remained low in October, according to the Labor Department’s job openings survey released Tuesday, despite some concentrated pockets of job losses in finance, tech and media.

“The current state of the labor market is a good one,” said Bunker. “For the last year plus, we’ve been talking about a normalizing labor market. We’re at the spot where that process is complete. This is a normal labor market. Things have calmed down in a painless way.”

Meanwhile, job openings have dropped substantially from their peak at 12 million in March 2022 down to 8.7 million jobs in October, according to the Tuesday report, in a sign that employers are no longer on a hiring frenzy. The low layoff rates and reduction in hours worked since earlier this year are signs that employers are acting cautiously, holding on to workers despite tempered demand, after years of competing for labor.

“Employers aren’t willing to close their eyes and pay for labor anymore,” said Drew Matus, chief market strategist at MetLife Investment Management. “But they’re paying attention to who and what they need. And they’re thinking what if everything gets so much better and I’m understaffed? Some of that is a hangover from the covid experience.”

Although the overall outlook remains rosy, economists have been keeping a close watch as a few key sectors, such as health care and education, buoy the labor market. Government, which has struggled since the pandemic to attract and retain workers, finally returned to its pre-pandemic levels in October, as wage growth caught up with the private sector. For months, hiring in industries such as retail, transportation and warehousing, and leisure and hospitality have seen much more sluggish and inconsistent growth.

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The good news for workers is that even as wage growth has moderated since earlier this year, rising by 4.1 percent over the previous 12 months in October, inflation has slowed more, meaning average hourly earnings are beating price increases, boosting Americans’ spending power.

“This is encouraging for central bankers and the people getting real wage gains,” Bunker 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.”