The United States is currently passing through a historic transition point regarding the structure of its labor market. In very recent data, the unemployment rate increased to a four-year high of 4.6% in November. This increase comes on the heels of 4.4% in September. Now the US central bank is caught between a rapidly deteriorating job market and accelerating inflation, creating a real debate about how to achieve these dueling objectives.
Meanwhile, in November the U.S. added 64,000 jobs, a number well above the predictions of most economists. This encouraging news stands in glaring juxtaposition to a dismal landscape of job losses and the negative effects of an economic downturn. Miscellaneous showed the largest decline at 11,800 jobs, followed by Manufacturing at -5,000. The transportation and warehousing sector suffered a massive loss of 18,000 jobs. The health care sector proved remarkably resilient. It added 46,000 jobs—I’m going to repeat that—nursing and residential care facilities added all on their own, 11,000 of those jobs.
The Labor Department has pushed the November jobs report back over a week. This delay follows a dramatic 43-day shutdown of the entire federal government that endured into mid-November. Millions of affected workers from the whipsaw layoffs delivered by the Trump administration’s Department of Government Efficiency hung on until October. Yet this delay only added to the uncertainty and complexity of the changing employment landscape.
Chris Zaccarelli, an independent financial adviser, said in a statement that the new data’s impact on the Federal Reserve may be limited.
“For a data-dependent Fed, this morning’s data will only increase the internal debate.” – Chris Zaccarelli
As Fed officials deliberate over new unemployment figures, futures are showing they overwhelmingly expect at least one rate cut by 2026. If more data reveals a further weakening of the labor market, it could lead to a shift in their approach.
Brookings economist Seema Shah has warned against putting too much faith in the current jobs data.
“They are likely to view today’s jobs data with a fair degree of skepticism and should not be taken at face value.” – Seema Shah
Its math just doesn’t add up. Other analysts are similarly skeptical. They argue that while on the surface job growth appears to be going gangbusters, underlying problems suggest that we’re not quite seeing a robust recovery.
Some experts are already arguing that the pace of recent job growth should cause “some growing worry inside the Fed.” Furthermore, Ms. Shah pointed out that upcoming releases of labor market data may have a major impact on Fed officials’ decision-making in the weeks ahead.
As the Federal Reserve continues on its difficult path of focusing on economic growth while addressing inflation, it will need to be strategic in its decision making. The current labor market challenges are great, and the opportunity to make targeted policy changes is significant. How we manage the complex dance between job creation and displacement will be key to defining our economic future.