An Odd Jobs Report Keeps Fed on Tapering Fast Track

(Bloomberg Opinion) -- Even by Covid-era standards, the latest U.S. jobs report was downright bizarre. 

Two headlines hit at the same time. The bad one: U.S. employers added just 210,000 workers in November, less than half of the median estimate in a Bloomberg survey of economists, which called for a 550,000 gain. The good one: The unemployment rate tumbled to 4.2%, down from 4.6% and beating estimates for a more modest dip to 4.5%.

Those two data points, seemingly at odds with each other, had analysts frenetically reminding readers that the Labor Department conducts two surveys. One is from employers, which informs the headline nonfarm payrolls figure, and the other is from households, which explains the overall jobless rate.

The household survey tells a clearly positive story about the labor market. According to that data, employment increased by 1.1 million, pushing the employment-to-population ratio up by the most since July to the highest since March 2020. The prime working-age ratio increased even more, while the jobless rates for Black and Hispanic Americans plunged more than the headline figure.

While it was far messier than expected, the November jobs report is unlikely to cause the Federal Reserve to rethink accelerating the pace of its tapering after its meeting later this month. The reaction in the U.S. Treasury market reflects this reality: Initially, yields fell after the miss on nonfarm payrolls but promptly reversed course as traders digested the stark contrast between the two surveys, with two-year yields reaching the highest since March 2020. And as Neil Dutta of Renaissance Macro Research was quick to point out, Fed officials themselves periodically forecast the unemployment rate, not changes in nonfarm payrolls. In September, no official saw the jobless rate falling below 4.5% by the end of the year. By that measure, the labor-market recovery is ahead of schedule in their eyes.

The simple fact remains that Fed Chair Jerome Powell and other policy makers are squarely focused on containing inflationary pressures that they now acknowledge risk becoming more persistent than they initially anticipated. And it bears mentioning that November's consumer price index data will be released on Dec. 10 — just five days before the central bank's decision. The median expectation is for headline CPI to reach 6.7%, which would be the highest since 1982. Bloomberg Economics says it could reach close to 7%. If talk about the highest inflation rate in 30 years got Fed officials' attention last month, the sharpest increase in almost 40 years will push them into action.

Meanwhile, workers continue to receive more money. Average hourly earnings increased 4.8% in November from the month a year earlier, while average weekly hours worked also ticked up. On Thursday, Treasury Secretary Janet Yellen said that it's up to the Fed to avert any wage-price spiral that could indicate the economy is “overheating.” The U.S. hasn't reached that point yet, but the latest data should be enough to keep pressure on Powell and his colleagues to make sure they don't fall too far behind the curve.

November's jobs report shows there's still room for improvement in the U.S. labor market, which has not yet fully recovered to pre-pandemic levels. But a 4.2% unemployment rate — which wasn't reached until September 2017 after the Great Recession — is a testament to the substantial progress that the American economy has made in rebounding from last year's sharp slowdown. No amount of bond buying is going to solve the challenges that still remain in ramping up labor force participation. The Fed is clear to speed up its tapering without betraying its employment mandate.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Brian Chappatta is a Bloomberg Opinion columnist covering debt markets. He previously covered bonds for Bloomberg News. He is also a CFA charterholder.

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