Another month of strong job growth showed that the U.S. economy is lifting more workers left out of the recovery and heading into next year with solid momentum, even as there are lingering uncertainties about the outlook for wages and inflation.
Employers added 228,000 net new jobs in November, following slightly bigger gains in October, the Labor Department reported Friday. Hiring was broad-based, led by business services, healthcare and manufacturing.
While partly a bounce-back from hurricanes in September, the back-to-back months of robust hiring reflect an economy buoyed by global growth and high confidence among consumers and businesses, in part because of soaring stocks and the prospects for tax cuts, surveys and economists suggest.
The nation’s unemployment rate held steady at a 17-year low of 4.1% in November.
The share of the prime-age population with jobs — a key employment indicator — hit a post-recession high. Jobless rates fell to the lowest on record for Latinos, 4.7%, and for those without a high school education, 5.2%.
“Workers should be encouraged there are jobs out there,” said Marvin Loh, senior global market strategist at BNY Mellon, an investment services firm.
Workers’ pay is another story. It has yet to accelerate despite the tightening labor market. Average hourly earnings in November were up a modest 2.5% from a year earlier, about the same rate they have been rising in recent years.
Low productivity, persistent outsourcing of jobs, and the departure of older, higher-paying workers are probably contributing to the slow pay growth, but some economists think there are many more unemployed people available for work than the jobless rate would indicate.
“I do think there is more slack out there in terms of available bodies to put into slots,” said Cliff Waldman, chief economist at the MAPI Foundation, a manufacturing research firm.
He noted that U.S. manufacturing output has increased moderately this year and employers have needed to add workers. In the coming year, Waldman said, factory hiring “won’t be weak, but it’s not going to be stunning, either.”
While worker earnings did not move up much, employees put in more time at factories, offices and stores last month. That helped increase their average weekly wages in November at a faster 3.1% annual pace.
And as more employers struggle to fill jobs, workers may soon see stronger pay raises. That would help boost consumer spending and economic growth more broadly, but also the pace of inflation. A November survey by the National Federation of Independent Business, for instance, found that 44% of small firms reported few or no qualified applicants for openings.
The NFIB said its survey last month showed job-creation plans were at their highest in 44 years.
The outlook for inflation is further clouded by the Republican plan to cut taxes by a net $1.5 trillion over 10 years. If that passes, as expected, it is likely to add some fuel to short-term economic growth, and that could prompt the Federal Reserve to raise interest rates a little more aggressively to keep inflation in check.
The Fed has lifted its benchmark interest rate twice this year, and the central bank is almost certain to make another small rate hike next week at its last policy meeting of the year.
While household debts have been increasing recently, analysts say consumer and business balance sheets generally look strong and will allow them to absorb an expected gradual uptick in interest rates.
“The economy is not developing serious imbalances or bubbles that could wreak havoc on the economy,” said Sophia Koropeckyj, an economist at Moody’s Analytics.
The U.S. economy is in its eighth year of expansion, one of the longest in history, and analysts expect job growth next year to slow only slightly from this year’s solid pace of about 175,000 new positions added on average every month.
That is down from the 187,000 average gains per month in 2016, but still a healthy rate of growth that, if it continues, will likely pull more people into the labor force and push down the jobless rate even further below what economists regard as full employment or the natural rate of unemployment.
“I don’t see any red flags on the horizon,” said Ben Herzon, an economist at Macroeconomic Advisers by IHS Markit.
If there is a downside, he said, stock values could be flattening as they are “a little rich” and could feel more pressure from rising wages and slowing profit margins.
What’s more, he wondered how long the economy would keep expanding when the labor market was increasingly operating beyond what many consider to be above its long-term sustainable level.