By Geoffrey Smith
Investing.com -- The U.S. labor market juggernaut refused to slow down in November, as job creation held up despite increasing signs of layoffs across the economy.
Nonfarm employment grew by 263,000 through the middle of the month, well above the 200,000 consensus forecast. October's number was also revised up by 23,000 to show a gain of 284,000.
The payrolls gain was only one element of a report that signaled ongoing tightness throughout the labor market. Average hourly earnings rose by 0.6% to push annual earnings growth back up to 5.1%. Here, too, October's data was revised up from an initial estimate of 0.4% to 0.5%.
Moreover, the buoyant jobs market again failed to lure sidelined workers back into the labor force. The participation rate fell to 62.1% from 62.2%.
The numbers vindicated the fears of those who see the U.S. economy as increasingly held back by a shortage of workers.
"Increasingly, I fear we are moving to an environment where labor is short, not long," Richmond Federal Reserve President said in a speech prepared before the release. "Labor supply looks like it will remain constrained."
The numbers hurt hopes for a quick end to interest rate increases by the Federal Reserve, which had risen in recent days as Chair Jerome Powell repeated that the central bank's next step will likely be smaller than the 75 basis point increases seen at each of the last four meetings.
By 08:45 ET (13:45 GMT), S&P 500 Futures were down 1.6%, while Dow Jones Futures were down 1.3%, and Nasdaq 100 Futures were down 2.3%. By contrast, the Dollar Index, which tracks the greenback against a basket of developed economy currencies, was up 0.6% at 105.38 and interest rate-sensitive 2-Year Treasury note yield was up 13 basis points at 4.38%.
Analysts said the report made it more likely that the Fed would have to continue tightening policy to tame inflation, even at the cost of a recession.
"I was allowing myself to get more hopeful about a soft landing...but this pretty much dashed that hope," tweeted Peterson Institute fellow Jason Furman, pointing to big upward revisions in hourly earnings in both of the last two months. That, together with a picture of slowing productivity growth, suggests that the labor market is still generating plenty of inflationary pressure, he argued.
"You probably want to revise your views on inflation and it’s overall dynamic more based on today’s jobs report than any other data report this entire year. And not in a favorable direction," Furman said.
On a sectoral breakdown, there were big gains in employment in the hospitality and leisure sector again, with manufacturing and construction also continuing to trend up. However, there were also increasingly visible pockets of weakness in consumer-facing sectors at the start of the key holiday season, with retail, transportation, and warehousing all shedding jobs.
"Retail hiring has been much lower so far this holiday season compared to any year in the 2010s," said Daniel Zhao, chief economist with Glassdoor.