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U.S. job growth rebounded more than expected in November after nonfarm payrolls were depressed in October by government-related spending cuts, suggesting no material deterioration in labor market conditions as businesses navigate economic uncertainty wrought by President Donald Trump’s aggressive trade policy.
While the Labor Department’s closely watched employment report on Tuesday showed the unemployment rate at more than a four-year high of 4.6% last month, the Bureau of Labor Statistics changed its methodology after the 43-day government shutdown prevented the collection of data from households. No unemployment rate for October was published.
“The firmer private sector employment figures support the Fed taking a pause in its rate-cutting cycle for some period,” said Kathy Bostjancic, chief economist at Nationwide. “The unemployment rate … should be taken with a large grain of salt since the disrupted normal collection of the household survey data due to the government shutdown distorted the data readings and is associated with higher-than-usual standard errors.”
Nonfarm payrolls increased by 64,000 jobs last month. The economy shed 105,000 jobs in October, reflecting the departure of more than 150,000 federal employees who took deferred buyouts as part of the Trump administration’s push to shrink the government’s footprint. Most of them dropped off government payrolls at the end of September.
Payrolls were not impacted by the furloughing of workers during the shutdown, as they were retroactively paid when the government reopened. The unemployment rate is calculated from the household survey and was at 4.4% in September.
“In the household survey, composite estimation relies on data from the previous month as an input to developing statistical weights for the current month’s data,” BLS said. “Without October data, the composite weighting formula was adjusted by shifting previously-collected data forward one month.”
The BLS also said the response rate was a lower-than-usual 64%, noting that collection started late because of the shutdown, which contributed to slightly higher-than-usual standard errors.
“The November unemployment rate required a 0.26 percentage point change to be statistically significant compared with a required change in September of 0.21 percentage point,” it said.
Job growth has been little changed since April. Economists say employers have pulled back from hiring because of what some described as shock from Trump’s sweeping import tariffs.
The import duties have raised prices for many goods, resulting in consumers, mostly lower- and middle-income households, being more selective in their purchases and ultimately cutting back on spending.
U.S. stocks opened lower. The dollar eased against a basket of currencies. U.S. Treasury yields fell.
SOME METHODOLOGY CHANGES COMING
Federal Reserve officials last week cut the U.S. central bank’s benchmark overnight interest rate by another 25 basis points to the 3.50%-3.75% range. However, they signaled borrowing costs were unlikely to fall further in the near term as they awaited clarity on the direction of the labor market and inflation.
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Fed Chair Jerome Powell told reporters in a post-meeting press conference that the labor market “seems to have significant downside risks,” alluding to a preliminary benchmark revision estimate in September that suggested 911,000 fewer jobs were created in the 12 months through March than previously reported, the equivalent of 76,000 fewer jobs per month.
The BLS will publish the final payrolls benchmark revision in February along with January’s employment report. With the release of the January report, it said it would effectively change the birth-death model by incorporating current sample information each month. The BLS uses the model to try to estimate how many jobs were gained or lost because of companies opening or closing in a given month.
“The change follows the same methodology applied to the April through October 2024 forecasts during the 2024 post-benchmark period,” the BLS said.
Job gains last month remained narrow, with the healthcare sector adding 46,000 positions, spread across ambulatory healthcare services, hospitals, nursing and residential care facilities. Construction employment grew by 28,000 jobs. Social assistance payrolls increased by 18,000.
Transportation and warehousing employment dropped by 18,000 jobs, reflecting job losses for couriers and messengers. Federal government employment decreased by 6,000 positions after plunging 162,000 in October as some federal employees who took deferred resignation offers fell off payrolls. Federal government employment is down by 271,000 since reaching a peak in January.
Average hourly earnings increased 3.5% in the 12 months through November after rising 3.7% in October. Slowing job growth is curbing wage growth and boosting the fight against inflation, but it could be a headwind to consumer spending, the economy’s main engine.
A separate report from the Commerce Department’s Census Bureau on Tuesday showed retail sales were unchanged in October after gaining 0.1% in September.
Economists say lower- and middle-income households have been disproportionately impacted by the soaring cost of living.
Trump, who won the 2024 presidential election on promises to tame inflation, has in recent weeks alternated between dismissing affordability problems as a hoax, blaming former President Joe Biden, and promising that Americans will benefit from his economic policies next year.
A Bank of America Institute report showed higher-income households are continuing to fuel discretionary spending growth, creating what economists have termed a K-shaped economy.
It noted that households making an annual income of $100,000 and above were spending on entertainment, but added “for lower-income households … travel and clothing are seeing stronger pullbacks, underscoring the growing gap in income groups’ economic experiences.”
Retail sales excluding automobiles, gasoline, building materials and food services surged 0.8% in October after an unrevised 0.1% dip in September. These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product.
Economists still expect that consumer spending supported gross domestic product growth in the third quarter. Prior to the report, the Atlanta Fed estimated GDP increased at a 3.6% annualized rate last quarter. The economy grew at a 3.8% pace in the April-June quarter. The government will release the delayed first estimate for third-quarter GDP next Tuesday.
(Reporting by Lucia Mutikani; Editing by Andrea Ricci, Chizu Nomiyama and Paul Simao)
