Manufacturing contracts further as the US job market remains tight

The number of US job openings did not decrease as much as the experts anticipated in November, indicating a still-tight labor market. As a result, we may observe the Federal Reserve boosting interest rates even higher than what experts expected in the near future to battle inflation.

A survey from the Institute for Supply Management (ISM) brought us good news last Wednesday. The prices paid by manufacturers for their input decreased for the first time since February 2016 in December 2022. The Fed has been showing us the fastest interest rate hiking cycle since the 1980s as it tried to lower overall demand, including that for labor. The US central bank projected last month that interest rates would even reach a peak of 5.1%. But the fact that the labor market remains tight tells us that borrowing costs will increase much more than this.

The labor markets remain hot, making it difficult for policymakers to suggest solutions. Until there is a slowdown in the hiring demands, the Fed officials would not be able to assess for certain whether their monetary tightening is getting the results for which they were hoping. The number of job openings, which is usually used as a measure of labor demand, decreased by 54,000 to a value of 10.458 million on November 30^th, last year.

In November, there were 1.74 open positions for every unemployed person in the job market. There were 212,000 jobs available in professional and business services, while the nondurable goods manufacturing industries saw an increase of 39,000 vacancies. However, job openings in finance and insurance decreased by 75,000. The number of federal government jobs decreased to 44,000. These are some of the sectors that were affected the hardest by the interest rate hikes.

The rate for job openings remained unchanged at 6.4%. This is 0.9% below the peak observed in March 2022. Hiring fell to just 6.055 million in October, but the healthcare and social assistance sectors experienced an increase of 74,000 in hiring. Even the hiring rate dropped to 3.9% in October. Last year, the Fed hiked interest rates by 425 basis points, the most since 2007. An additional increase of 75 basis points was projected last month, to be seen by the end of 2023.

The officials of the Federal Reserve believe they have made significant progress over 2022 to bring down inflation, as shown by the minutes of the Fed’s Dec. 13–14 policy meeting. They believe the central bank needs to be concerned about potentially placing large burdens on vulnerable groups as it fights against price pressures.

The number of people resigning from their jobs increased by 125,000 in November, bringing the figure up to 4.173 million. The quit rate rose in response, from 2.6% to 2.7%. Higher resignations mean elevated wage growth as well as inflation. The number of layoffs decreased to 1.350 million. Workers are quitting their jobs to join new businesses, which fuels wage growth. When more and more workers leave companies, employers become reluctant to let go of the remaining talent.

Consumers in the US are slowly moving away from spending on goods and services, causing supply chains to improve. The forward-looking new orders sub-index of the ISM survey has been in contraction for four solid months now, with the figure dropping to 45.2 from its high in November. The measure of supplier deliveries also decreased, to 45.1 from 47.2 in November. This is just below the threshold value of 50, which ensures faster deliveries to factories. Goods prices keep dropping every month, while the annual increase has slowed down. Experts are anticipating a goods deflation in 2023.