< The U.S. gained 263,000 jobs last month. It's good news for workers, but not the Fed

RACHEL MARTIN, HOST:

Hiring in the U.S. slowed only slightly last month as rising interest rates weighed on businesses. The overall job market remains unusually tight. The Labor Department reported this morning that U.S. employers added 263,000 jobs in November. The unemployment rate held steady at a low. The unemployment rate held steady at a low 3.7%. NPR's Scott Horsley is with us with details. Hey, Scott.

SCOTT HORSLEY, BYLINE: Good morning, Rachel.

MARTIN: So this report showed stronger job gains than forecasters had expected, even though the Fed has been battling inflation with higher interest rates. What's going on?

HORSLEY: The job market has just been really resilient. It has been chugging along, adding jobs at a very consistent rate for the last several months. That's good news for workers and anybody looking for work. But it is a bit of a Maalox moment for the Federal Reserve, which has been trying to cool off the job market with those higher interest rates. You know, the Fed is worried that wages have been climbing at a rapid rate as employers compete for scarce workers. Average wages in November were up more than 5% from a year ago. And Wells Fargo economist Sarah House says the Fed is concerned that could push already high consumer prices even higher.

SARAH HOUSE: The Fed has essentially said that they need to see a cooler jobs market to help reduce those inflationary pressures.

HORSLEY: So the Fed's been pushing up interest rates at the fastest pace in decades, but so far it's just not putting much of a dent in the job market.

MARTIN: Which jobs are most affected by these actions from the Fed?

HORSLEY: You know, you'd expect to see the impact in construction jobs and manufacturing jobs, for example. Those are industries that are particularly sensitive to rising interest rates. But construction companies added 20,000 jobs in November. Factories added 14,000. Now, there are some signs that those businesses are feeling the effect of higher borrowing costs. A survey this week showed factory activity in November declined for the first time since the very early days of the pandemic. As factory orders have slowed down, some managers have stopped filling job vacancies. Some even report laying off workers. But on balance, the factory sector is still adding jobs. Tim Fiore, who oversees that survey for the Institute for Supply Management, says he doesn't think the sky is falling.

TIM FIORE: I think this is still a soft contraction. I'm really hopeful that some amount of demand will come back. There's still pretty robust production plans for 2023.

HORSLEY: Today's report did show some job cuts in retail and in warehousing. But as we look more broadly around the economy, we're just not seeing evidence of widespread layoffs. New claims for unemployment benefits, for example, are still at historically low levels.

MARTIN: I know the Fed is worried about inflation, but Scott, it's also supposed to promote full employment in this country. So why is the central bank deliberately pouring cold water on the job market?

HORSLEY: Yeah. At one point the Fed was hoping the job market would cool off by itself, but that just hasn't happened. And part of the problem is that while jobs have rebounded really quickly, the workers needed to fill those jobs have not. The labor force actually shrank last month by 186,000 people. So the Fed's having to restore balance the hard way by tamping down demand. Now, Fed Chairman Jerome Powell acknowledged this week that could result in somewhat higher unemployment. But he says the alternative of letting wages and prices climb unchecked would be worse.

JEROME POWELL: Right now, people's wages are being eaten up by inflation. If you want to have a sustainable, strong labor market where real wages are going up right across the wage spectrum, especially for people at the lower end, you've got to have price stability.

HORSLEY: Now, so long as unemployment stays low, people are going to cut the Fed some slack. But if unemployment changes, that could change.

MARTIN: NPR's Scott Horsley, thank you.

HORSLEY: You're welcome.

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