The Bureau of Labor Statistics released The Employment Situation for November 2022 today. The report contains information from two surveys about the state of the labor market. The household survey reports data from households about individual employment outcomes. This survey found that the unemployment rate was unchanged in November at 3.7 percent. The report also showed that the employment-to-population ratio and labor force participation rate was little changed. The second survey is of establishments and measures the total number of jobs in the economy. Here the survey found that the economy added 263,000 new jobs in November.
Together, the reports show that the labor market is in much the same state that it has been over the past 4-5 months. Job growth in the economy remains steady and unemployment remains low. The labor market remains strong even as the Federal Reserve is raising rates to lower inflation. Given the low number of unemployed workers, a major constraint in the labor market is the number of workers in the labor force. A return of labor force participation rates to pre-pandemic levels would help the labor market return to normal functioning by increasing the number of available workers.
With much of the focus on the economy centered on inflation and how much higher interest rates will need to rise, it is interesting to assess what this report says about inflation going forward. Here, the continued strong labor market is encouraging that higher interest rates are not damaging the labor market. The employment survey also reports information on how wages are evolving. The report found that wage growth is accelerating, with a 0.6 percent increase in November, bringing total wage gains for the past year to 5.1%.
While some are worried that this is evidence of higher inflation, I interpret much of the wage growth we see as a response to inflation rather than driving it. Specifically, wages have continued to grow more slowly than prices over the past year, meaning real wages are falling. I would want to see a trend of rapidly rising real wages before being concerned that wage growth will fuel future inflation.
