Job growth was much better than expected in November, despite the Federal Reserve’s aggressive efforts to rein in jobs and fight inflation.
Non-farm payrolls rose by 263,000 this month, while the unemployment rate stood at 3.7%, the Labor Department reported on Friday. Economists polled by Dow Jones had expected the number of employed to rise by 200,000 and the unemployment rate to rise by 3.7%.
Monthly gain was a slight decline from October’s revised up 284k. A broader measure of unemployment, which includes discouraged workers and those who have part-time jobs for economic reasons, fell slightly to 6.7%.
The numbers are likely to do little to slow a Fed that has steadily hiked interest rates this year to bring down inflation, which is still near its highest level in more than 40 years. The rate hikes have brought the Fed’s federal funds rate to a target range of 3.75% to 4%.
In another blow to the Fed’s anti-inflation efforts, average hourly wages rose 0.6% for the month, double the Dow Jones estimate. Wages rose 5.1% year-on-year, also well above expectations of 4.6%.
The Dow Jones Industrial Average fell as much as 350 points after reporting concerns that hot jobs data could make the Fed even more aggressive. However, shares recouped most of their losses as the trading session neared its end. Treasury yields initially rose on the job news before later being mixed.
“To have created 263,000 jobs even after interest rates were raised by some  Basis points is no joke,” said Seema Shah, chief global strategist at Principal Asset Management. “The job market is hot, hot, hot, adding pressure on the Fed to keep raising interest rates.”
Leisure and hospitality led the job gains, adding 88,000 jobs.
Other industry gainers included healthcare (45,000), government (42,000) and other services, a category that includes personal and laundry services, which saw an overall increase of 24,000. Social assistance saw an increase of 23,000, bringing the sector back to where it was in February 2020 before the Covid pandemic, according to the Labor Department.
Construction added 20,000 jobs, while information rose 19,000 and manufacturing 14,000.
On the other hand, retail companies reported a loss of 30,000 jobs heading into what is expected to be a busy holiday shopping season. Transport and warehousing also saw a 15,000 drop.
The numbers come as the Fed has hiked rates a half-dozen times this year, including four straight hikes of 0.75 percentage points.
Despite the changes, job gains have been strong this year, albeit slightly slower than the blistering pace of 2021. On a monthly basis, payrolls are up an average of 392,000 from 562,000 in 2021, with 1.7 job vacancies for every available worker.
“The Fed is tightening monetary policy, but someone forgot to tell the labor market,” said Brian Coulton, chief economist at Fitch Ratings. “The good thing about these numbers is that they show that the US economy has firmly returned to growth in the second half of the year. But continued job growth at this rate will do nothing to reduce the labor supply/demand imbalance that worries the Fed.
Fed Chair Jerome Powell said earlier this week that job growth is “far in excess of the pace needed to sustain population growth over time” and that wage pressures are contributing to inflation.
“To be clear, strong wage growth is a good thing. But for wage growth to be sustainable, it must be consistent with 2 percent inflation,” he said during a speech in Washington, DC on Wednesday
Markets expect the Fed to hike interest rates by 0.5 percentage point when it meets later this month. That will likely be followed by a few more hikes in 2023 before the central bank can pause to see how its policies affect the economy, according to recent market prices and statements from multiple central bank officials.
Friday’s numbers had little impact on interest rate expectations, with traders assessing a nearly 80% chance the Fed would backtrack on a half-point hike, according to data from CME Group.
“The economy is big and it takes a long, many months for these things to trickle through,” Charles Schwab’s managing director of trading and derivatives Randy Frederick said of the rate hikes. “The impact of these rate hikes is not really being felt yet. Powell is right to be a bit cautious.”
Powell has stressed the importance of returning labor force participation to pre-pandemic levels. However, November reports showed that labor force participation fell by a tenth of a percentage point to 62.1%, the lowest level for the year, as the labor force fell by 186,000 and is now slightly below where it was in February 2020.