The number of job openings in the United States fell less than expected in November as the labor market remains tight, which could allow the Federal Reserve to raise interest rates more than expected to dampen inflation.

However, there was encouraging news in the fight against inflation. A study from the Institute for Supply Management on Wednesday found that prices manufacturers paid for inputs plunged to their lowest levels since February 2016 in December, excluding a dip early in the COVID-19 pandemic.

The Fed is in the fastest cycle of rate hikes since the 1980s as it tries to dampen demand, including for labor, to curb inflation. Last month, the US central bank predicted interest rates could rise to a peak of 5.1 percent. But the continued tightness in the labor market has led economists to expect borrowing costs to rise to much higher levels and remain there for some time, which could undermine economic growth.

“Labor markets are still too hot for policymakers,” said Christopher Rupkey, chief economist at FWDBONDS in New York. “Fed officials won’t be sure their monetary tightening is working until hiring demand starts to slow down.”

The number of job openings, a measure of labor demand, fell by 54,000 to 10.46 million on the last day of November, the Labor Department said in its monthly survey of job vacancies and labor turnover. The data for October was revised upwards to show 10.51 million openings instead of the previously reported 10.33 million. Economists polled by Reuters had predicted 10 million job openings.

In November there were 1.7 jobs for every unemployed person.

Professional and business services posted another 212,000 job openings, while non-durable goods manufacturing jobs increased by 39,000. But job openings fell 75,000 in finance and insurance and fell 44,000 in the federal government.

The vacancy rate remained unchanged at 6.4 percent, which was 0.9 percentage points lower than the peak in March 2022. The number of job vacancies fell from 6.11 million to 6.06 million, but in the health and social assistance sector it increased by 74,000. The recruitment rate fell from 4 percent in October to 3.9 percent.

The Fed last year raised its benchmark interest rate by 425 basis points from near zero to 4.25-4.5 percent, the highest since late 2007. Last month it forecast an additional 75 basis points by the end of 2023.

Minutes from the Fed’s December 13-14 policy meeting, published on Wednesday, showed officials acknowledging that “significant progress” had been made over the past year to reduce inflation and that the central bank now needed to balance its fight against price pressures and the risks of slowing the economy. many and “potentially place the greatest burden on the most vulnerable” through higher-than-necessary unemployment.

Stocks on Wall Street were trading higher. The dollar slid against a basket of currencies. US Treasury bond prices rose.

Manufacturers see falling input prices

machines work on an assembly line for Ford vehicles at Ford's Chicago Assembly Plant in Chicago, USA
November saw the ninth consecutive monthly decline in the index that measures the prices paid by manufacturers for input goods, due to declining demand for products [File: Amr Alfiky/AP]

Still tight labor market conditions were compounded by an increase of 125,000 people leaving their jobs, bringing it to 4.173 million in November. That raised the quit rate, seen by policymakers and economists as a measure of confidence in the labor market, from 2.6 percent in the previous month to 2.7 percent.

Higher layoffs can keep wage growth high and ultimately inflation. The number of layoffs fell by 95,000 to 1,350 million.

“Employees are overwhelmingly quitting their old jobs to take on a new one, which is a critical fuel for wage growth,” said Nick Bunker, head of research at Indeed Hiring Lab. “The flip side of employees who leave their old jobs easily is that employers don’t let go of the employees who remain.”

In a separate report on Wednesday, the Institute for Supply Management said prices paid by manufacturers fell from 43 in November to 39.4 last month. Excluding the plunge in April 2020, this was the lowest reading since February 2016. The index’s ninth consecutive monthly decline reflected declining demand for goods, which are typically purchased on credit.

Supply chains are improving and Americans are also shifting spending from goods to services as the country moves into a post-pandemic era. The Institute’s sub-index for forward-looking new orders fell to 45.2, its lowest level since May 2020, from 47.2 in November. It was the fourth month in a row that this measure fell into contraction territory.

The institute’s benchmark for supplier deliveries fell to 45.1 from 47.2 in November. It fell below the 50 threshold for the first time since February 2016 in October. A reading below 50 indicates faster deliveries to factories.

Fed officials and economists have always seen supply chains, which were under strain at the beginning of the pandemic, as key to bringing inflation back to the central bank’s target of 2 percent. The significant improvement in supply and declining demand are already translating into monthly price drops for goods.

On an annual basis, price increases for goods have slowed significantly. Economists expect commodity deflation this year.

Due to declining demand, production contracted in December for the second consecutive month. The institute’s Purchasing Managers Index (PMI) fell from 49 in November to 48.4.

That was the weakest reading since May 2020, when the US economy was hit by the first wave of COVID-19 cases. The index fell just below the level of 48.7, which the institute says is consistent with a recession in the broader economy.

But with the labor market still pumping jobs and sustaining consumer spending, the economy is unlikely to be in recession.

A PMI reading below 50 indicates contraction in manufacturing, which accounts for 11.3 percent of the US economy. Economists had predicted the index would fall to 48.5.

The institute’s benchmark for factory employment recovered to 51.4 from 48.4 in November. This gauge, which fluctuated up and down, was not a good predictor of manufacturing payrolls in the government’s closely monitored employment report.

According to a survey of Reuters economists, manufacturing employment likely increased by 10,000 in December, following a 14,000 increase in November. Overall, nonfarm payrolls are forecast to have increased by 200,000 in the past month. In November, 263,000 jobs were added. The government will publish its December employment report on Friday.

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