The Labor Department’s November jobs report on Friday certainly didn’t make the Federal Reserve’s anti-inflation task any easier. Strong job and wage growth suggests demand for workers still exceeds the supply, and inflation is still too high.
Employers added 263,000 jobs last month though gains were revised down by 23,000 during the previous two. Private payrolls increased by 221,000 with hiring broad-based, including in leisure and hospitality (88,000), healthcare (45,000), construction (20,000), media and tech (19,000), manufacturing (14,000) and real estate (13,000). There’s no sign of a recession in this jobs data.
Retail lost 30,000 jobs, probably owing to spending shifts to services from goods, which was bound to happen as the pandemic faded. Workers who lose jobs in department stores are finding them in other places. Notwithstanding reports of layoffs in Silicon Valley, plenty of businesses are hiring.
The problem is they still can’t find enough workers. The civilian labor force on the household survey shrank by 186,000 last month while the participation rate ticked down 0.1 percentage point to 62.1%. As a result, the unemployment rate stayed flat at 3.7%. Labor force participation remains significantly down from 63.4% before the pandemic.
It’s not merely a result of more baby boomers retiring. Labor force participation among males ages 25 to 54 has slid to 88.4% from 89.3% before the pandemic. Don’t blame long Covid. The decline is most pronounced among young men. Labor participation among males ages 20 to 24 has fallen 1.7 percentage-points since January 2020 versus 0.5 for those ages 45 to 54.
One culprit may be generous Covid transfer payments. A recent Federal Reserve report estimated that U.S. households as of mid-2022 were sitting on $1.7 trillion in excess savings—i.e., above savings they’d have if consumer spending and income had grown at pre-pandemic trends. A big reason is federal stimulus payments, child tax credits and more.
Congress in March 2020 boosted food-stamp benefits and waived work requirements as long as the national public-health emergency declaration is in effect. President Biden says the pandemic is over but won’t end the formal emergency. Food-stamp beneficiaries are receiving on average $227 per month—nearly twice as much as before the pandemic. Student loan payments have also been waived, which has saved the average borrower $12,800.
Milton Friedman’s insight that monetary policy works on the economy with long and variable lags may be true of pandemic fiscal policy too. This could hinder the Fed’s efforts to tamp down inflation. Wages are continuing to rise at a fast clip as employers struggle to hire and keep workers. Private average hourly earnings were up about 0.6% in November or 6.6% at an annual rate.
Workers are also demanding higher wages to compensate for inflation. United Airlines pilots last month shot down a contract offering a nearly 15% raise over 18 months, and American Airlines pilots union rejected a 19% raise over two years. Let’s hope the modest decline in inflation in recent months isn’t transitory.