就业数据大好，美联储却面露难色

Predictions of a looming recession have been widespread ever since the Federal Reserve began raising interest rates to fight inflation in March 2022, hiking borrowing costs for already struggling businesses and consumers nationwide. But the resilience of the U.S. labor market has helped fend off a recession over the past few years, to the surprise of many experts—and that trend continued in November.

The U.S. economy added 199,000 jobs last month, and the unemployment rate dropped to 3.7%, the Bureau of Labor Statistics reported Friday. That’s compared with consensus estimates for 150,000 new jobs and a 3.9% unemployment rate.

Now, there’s a growing chorus of experts who believe the labor market’s strength is another sign that the economy may be able to avoid the recession that so many Wall Street forecasters once argued was inescapable.

“Just when you think the economy is finally softening, it continues to show signs of strength,” Chris Zaccarelli, chief investment officer for Independent Advisor Alliance, said of the jobs report Friday. “The recession that seemed so inevitable at the end of 2022, still hasn’t arrived and may not come anytime soon.”

Cooling, but not freezing

Overall, the latest jobs report showed a labor market that continues to “ease but not fall off a cliff,” as Morgan Stanley’s chief U.S. economist, Ellen Zentner, put it in a Friday note.

Although the unemployment rate fell in November, job growth was limited to certain sectors of the economy. Most jobs added came from the health care sector (77,000) and new government positions (49,000), while the 28,000 job gain in the manufacturing sector was largely the result of the autoworkers’ strike coming to an end, rather than new job growth.

”The main reason for lackluster job growth across most of the economy is high interest rates,” ZipRecruiter chief economist Julia Pollak said.

This is good news for the Fed, which has been hoping to use rate hikes to cool the economy and pull off a “soft landing”—when inflation fades without a subsequent spike in unemployment. But if the cooling trend turns to freezing, that could be more concerning for the economy’s long-term health.

Also last month, average hourly earnings, a key factor in the Fed’s inflation outlook, grew 4.3% from a year ago. That’s down from 4.4% in October, but still well above what Fed officials would likely be comfortable with. “The data suggests that wage growth is cooling, but only ever so gradually,” Pollak said. Wage growth above 4% can make it difficult for the Fed to push inflation down to its 2% target.

The Federal Reserve in limbo

The labor market’s resilience juxtaposed with the steady drop in U.S. inflation will make the Fed’s upcoming interest rate decisions challenging. Low unemployment and rising wages could spark a resurgence of inflation in 2024, forcing Fed officials to keep interest rates elevated.

“If today’s report is a harbinger of continued consumer spending the Fed may have to issue a considerably more hawkish message and telegraph that they still cannot declare victory on their campaign to quell inflation,” LPL Financial’s chief economist Quincy Krosby explained, arguing “the Fed has been stymied by better than expected data releases.”

However, if the labor market cools too much, it could soon freeze, leading to a recession and forcing the Fed to cut interest rates. The central bank’s chairman, Jerome Powell, explained this conundrum in an October speech.

“Doing too little could allow above-target inflation to become entrenched and ultimately require monetary policy to wring more persistent inflation from the economy at a high cost to employment,” he said, but “doing too much could also do unnecessary harm to the economy.”

The never-ending recession debate

While the Fed is torn over whether to cut interest rates or hold them steady, the labor market’s resilience has added ammunition to optimistic forecasters’ arguments that a soft landing lies ahead.

BOK Financial chief investment strategist Steve Wyett said the latest jobs report, as well as recent positive data on job openings, “indicates a job market coming into balance in a way which supports the idea of a soft landing for the economy.”

Meanwhile David Royal, chief financial and investment officer at Thrivent, said the jobs report was “strong across the board,” pointing to the increase in the number of people entering the workforce and total number of hours worked. “All of this information is consistent with continued economic expansion heading into 2024,” he argued.

But some more pessimistic experts still believe that the Fed’s interest rate hikes will ultimately freeze the cooling labor market and spark a recession—so the now over two-year-old debate continues.

“The key uncertainty for the labor market in 2024 is whether job growth slows to a more sustainable pace, or whether the economy moves from monthly job gains to monthly job losses,” PNC chief economist Gus Faucher said Friday. “PNC still thinks recession is the more likely outcome in 2024, but it is a close call.”