Job Growth Slowed in November, but Wage Growth Accelerated

The economy created far fewer jobs than economists expected in November, and the unemployment rate rose, indicating that demand for workers is easing as growth slows.

But the average hourly wage rose by a surprisingly large 0.4%, lifting the pace of earnings growth to the highest level in nearly two years, and throwing a bit of cold water on hopes that the Fed will act soon to stimulate the economy with interest-rate cuts.

According to the November employment report (definition | chart | source ), released today by the Labor Department, nonfarm payrolls added 94,000 new jobs in November. Economists polled by Reuters had forecast 140,000 new jobs, on average.

Further establishing the slower pace of job growth, the number of jobs created in October was revised to 77,000 from 137,000. As a result, the 12-month average pace of job growth fell to 176,000 in November, the lowest since April 1996.

Employment Report at a Glance
	November	October Revised	October Original
Nonfarm payrolls	+94,000	+77,000	+137,000
Service-sector payrolls	+98,000	+56,000	+99,000
Manufacturing payrolls	+1,000	-3,000	unchgd.
Construction payrolls	-6,000	+22,000	+34,000
Unemployment rate	4.0%	3.9%	3.9%
Average hourly earnings	+0.4%	+0.4%	+0.4%
Average workweek	34.3 hrs.	34.4 hrs.	34.3 hrs.
Manufacturing workweek	41.1 hrs.	41.4 hrs.	41.3 hrs.
Source: Labor Department

The weakness was broad-based. Services, the economy's largest sector, added 98,000 new jobs, The 12-month average gain in service-sector payrolls is 165,000. Manufacturing payrolls added a scant 1,000 jobs, though that was their best performance in four months. Construction lost 6,000 jobs.

A rise in the number of unemployed (to 5.7 million from 5.5 million) in excess of the increase in the number of people in the labor force caused the unemployment rate to rise to 4.0% from the 30-year low of 3.9% in October.

The augmented unemployment rate , which also takes into account people who are not officially unemployed because they haven't searched for work lately, but who would take a job if offered one, also rose, to 6.9% from 6.8%. The pool of available workers, which sums the officially and unofficially unemployed and which is closely monitored by the Fed as a measure of slack in the labor market, rose to 10 million from 9.9 million.

But, even as demand for workers eased, wages and salaries rose. Average hourly earnings rose 0.4% to $13.94 in November from $13.88 in October. Economists surveyed had predicted a rise of 0.3%.

As a result, the growth rate for average hourly earnings rose to 4.0%, the fastest since January 1999, from 3.9%.

A fast rate of earnings growth has the potential to cause inflation to rise by creating demand for more goods and services than the economy can produce. As long as the Fed sees the risk of rising inflation, it will hesitate to lower interest rates, even though growth is slowing.