The U.S. economy added back fewer jobs than expected in November, while the unemployment rate fell further than anticipated to the lowest since February 2020.
The Labor Department released its November jobs report Friday at 8:30 a.m. ET. Here were the main metrics from the print, compared to consensus estimates compiled by Bloomberg:
Non-farm payrolls: +210,000 vs. +550,000 expected and a revised +546,000 in October
Unemployment rate: 4.2%vs.4.5% expected, 4.6% in October
Average hourly earnings, month-over-month: 0.3% vs. 0.4% expected, 0.4% in October
Average hourly earnings, year-over-year: 4.8%vs. 5.0% expected and a revised 4.8% in October
U.S. employers have added back jobs on net in every month so far in 2021 as vaccinations, reopenings and a recovery in the high-contact services industries helped boost hiring.
Service sector employment growth did decelerate notably in November compared to October, however. Leisure and hospitality industries, which had seen some of the biggest job gains in recent months, added just 23,000 payrolls after October's increase of 170,000. Retail trade employers shed payrolls on net, with these dropping by more than 20,000 after job gains of nearly 40,000 in each of October and September. In the goods producing sector, motor vehicle and parts employers also shed jobs, erasing more than 10,000 positions after adding 19,300 in October.
"The headline miss was largely due to a muted 23,000 rise in leisure and hospitality payrolls, indicating that the nascent winter wave of virus infections was now weighing on the sector. With new cases now on the rise again even before the potential impact of the Omicron variant, leisure sector employment growth looks set to remain weak over the winter," Andrew Hunter, senior U.S. economist for Capital Economics, wrote in a note on Friday.
"Moreover, we remain skeptical that a further significant recovery in the labor force lies ahead – particularly given the worsening virus situation and the potential Federal vaccine mandate," he added.
Though the payroll gain in the November jobs report disappointed sharply compared to expectations, job growth for October and September were each upwardly revised. Payrolls grew by 546,000 in October, versus the 531,000 previously reported, while jobs grew by 379,000 in September compared to the 312,000 posted in the first estimate.
But despite the solid rehiring throughout the year, labor force participation remains short of pre-pandemic levels. As of November, the civilian labor force was still down by about 2.4 million participants, compared to February 2020. The labor force participation rate ticked up slightly more than anticipated in November, however, to reach 61.8%, versus the 61.7% consensus economists were expecting and the 61.6% posted in October. The labor force participation rate had been 63.3% in February 2020 before the pandemic meaningfully impacted the job market.
Economists have attributed the stubbornly depressed participation rate to a host of factors, including lingering concerns about COVID-19 infections, difficulties finding child care and a desire by many workers to leave their jobs and pursue roles with more flexibility, wages or benefits. With the latest emergence of the Omicron variant, these myriad factors may further inhibit a rebound in labor force participation.
"Labor supply shortages do not show material signs of improvement, and could actually worsen in coming months with the federal vaccine mandate taking effect on January 4, 2022. As such, labor market conditions should remain tight, perpetuating strong wage growth," Sam Bullard, managing director and senior economist for Wells Fargo, wrote in an email ahead of Friday's report. "On balance, robust labor demand and further COVID improvements should support strong labor market gains last month, though we are mindful of the challenges the are likely to persist in the labor market for the foreseeable future."
As worker demand remains elevated, wages have also risen and contributed to the inflation seen across the economy this year. Average hourly earnings rose for an eighth straight month, increasing by 0.3% in November compared to October. Average hourly wages rose by 4.8% in November over last year, matching October's annual rate but coming in slightly cooler than the 5.0% increase expected.
Inflationary trends have also been reflected in other recent economic data. The government's latest report on October core personal consumption expenditures, or the Federal Reserve's preferred inflation gauge, showed an increase of 4.1% year-over-year – the most in three decades.
"Don’t be fooled by the measly 210K payroll jobs gain this month because the economy’s engines are actually in overdrive as shown by the plunge in joblessness from 4.6% in October to 4.2% in November." said Chris Rupkey, chief economist for FWDBONDS, in an email. "Unemployment is tumbling as companies snap up workers to meet the economy’s very strong demand. The U.S. economy is back on a tear with full employment right around the corner. Fed rate hikes are coming."
And heading into Friday's report, other labor market data have also underscored the present tightness of the labor market. ADP's jobs report on Wednesday, while an imperfect indicator of the monthly government data, nevertheless showed an encouragingly stronger-than-expected rise in private-sector employment growth last month. And weekly jobless claims from the Labor Department slid to the lowest level in 52 years in mid-November during the survey week for the monthly jobs report.
