Happy Friday! Here’s your fiscal update.
Unemployment Rate Drops in a Goldilocks Jobs Report
U.S. employers continued to create jobs at a healthy clip in November, according to data released by the Labor Department Friday, raising hopes for a recession-free soft landing for the economy as it continues to recover from an intense bout of inflation over the last two years.
Payrolls increased by 199,000 during the month and the unemployment rate dropped to 3.7%, with both readings beating expectations. Wages continued to grow, even as half a million people entered the labor force.
The numbers point to a job market that has slowed a bit but remains robust, offering what amounts to a Goldilocks set of data — not too hot, not too cold — for the Federal Reserve as it mulls interest rate policy at its final meeting of the year next week.
Some key details: The job growth numbers were boosted by the end of the auto strike last month, which put about 30,000 people back to work. Most of the remaining growth came from the healthcare and government sectors.
Other sectors were sluggish or even negative. Retail lost 38,000 jobs, while construction and financial services were basically flat.
Average hourly earnings rose 0.35% on a monthly basis and 4% on an annual basis. With inflation running at 3.2% on an annual basis, that means that workers saw increases in real wages, even as the annual growth rate dropped slightly from the month before.
The job market has seen gains for 35 straight months. Including revisions, the monthly gains have averaged 204,000 over the last three months, more than enough to maintain the current unemployment rate. Acting Secretary of Labor Julie Su noted that the unemployment rate has now been under 4% for 22 months straight. “Not since 1970 has unemployment been this low for this length of time, demonstrating once again that Bidenomics is working,” she said in a statement.
What the experts are saying: “It's the little engine that could, and this little locomotive keeps a chugging along,” wrote University of Michigan economist Justin Wolfers. “If I had asked you a year ago to sketch what you thought a soft landing might look like, it's likely you would have pretty much drawn the current economic data.”
Economist Mike Konczal of the Roosevelt Institute, a left-leaning think tank, added some context, connecting the recent inflationary period to the dislocations associated with closing and then reopening the economy during the pandemic. “[T]his print is basically exactly what you'd want and expect to see from a soft landing, where inflation is falling because the difficult reopening process is over,” he wrote.
All eyes on the Fed: Many analysts expected to see weaker job growth numbers in November, which spurred hopes that the Fed would lower interest rates sooner rather than later to boost a lagging economy. But the solid report suggests that the Fed’s stated intent of keeping rates “higher for longer” will likely carry over into 2024, and it seems likely that central bank officials will hold rates steady next week.
At the same time, there is nothing in the report that will push bank officials to contemplate another rate hike. “We think the Fed will have no problem at all with this report,” said JPMorgan economist Michael Feroli.
Economist Nick Bunker of the jobs site Indeed said the data offer good news for both the Fed and workers. “This is encouraging for central bankers and the people getting real wage gains,” he said. “It’s helping people spend more which is good for GDP growth and for everyone. It’s a win-win for a variety of audiences.”
So while it’s highly unlikely that the Fed will raise rates, it remains an open question of how long it will take for bank officials to start cutting them.
The bottom line: The U.S. economy continues to hum along, with job growth downshifting from extraordinary highs in 2021 and 2022 to more sustainable — but still healthy — levels heading into 2024.
Freedom Caucus Hardliners Warn Johnson on Ukraine and Defense Bill
Conservative hardliners in the House Freedom Caucus issued a stark warning Friday for Speaker Mike Johnson: They will oppose any new emergency aid package for Ukraine “unless America’s own border is fully secured with significant and verifiable improvement and the cost is entirely offset.”
The House Freedom Caucus statement signals more trouble ahead — and the possibility of another right-wing revolt against a GOP speaker — as Senate negotiators try to hammer out a bipartisan deal to provide more than $60 billion in additional military and humanitarian aid for Ukraine as part of a larger national security package that also includes border policy changes.
House lawmakers are set to leave Washington, D.C., for their year-end recess on December 15. Their schedule — combined with the ongoing struggles to reach an emergency spending deal on the Senate side and the likelihood that House Republicans led by Johnson will object to any bipartisan compromise — appear to leave little chance of Ukraine aid passing this year.
“The Members of the House Freedom Caucus are prepared to use all available leverage to change the status quo. We will not simply vote ‘no’ on bad legislation and go home for Christmas,” the conservative group said in its statement.
The Freedom Caucus also demanded spending cuts that are achieved without gimmicks or side deals. They said that any reauthorization of the Foreign Intelligence Surveillance Act (FISA) must include significant reforms and be passed on its own, not as part of the $886 billion annual defense policy bill. And they also objected to a compromise version of that defense bill, which excludes some key Republican culture war provisions seeking to limit abortion access and transgender care.
“The bill does, however, include limited restrictions on diversity initiatives, including a cap on salaries and hiring for positions devoted exclusively to such training programs, and a ban on teaching critical race theory in military academies and schools,” The New York Times reports. “It also includes a ban on requiring Defense Department personnel to identify themselves by their preferred pronouns, and a ban on official displays of ‘unapproved’ flags — including banners signaling L.G.B.T.Q. pride.”
The defense bill, including a FISA extension, is expected to be voted on next week.
“It’s going to be a very big problem for him if he puts it on the floor. Our base will be furious,” Republican Rep. Marjorie Taylor Greene of Georgia said, according to the Times.
The bottom line: House Republican divisions continue, and though they are unlikely to derail the annual defense policy bill, a right-wing rebellion against Johnson could result in other legislation being blocked as ultraconservatives insist that their demands be met. The Senate is expected to pass the compromise defense bill next week and the House is expected to take it up after that.
Have a great weekend! Send your feedback to yrosenberg@thefiscaltimes.com. And please encourage your friends to sign up here for their own copy of this newsletter.
Fiscal News Roundup
- GOP Hardliners Threaten Speaker Johnson Over Ukraine Funding – Bloomberg
- Defense Bill Agreement Angers Hard Right, Posing a Threat to Johnson – New York Times
- U.S. Job Growth Holds Up as Economy Gradually Cools – New York Times
- Economy’s Soft Landing Comes Into View as Job Growth Slowly Descends – Wall Street Journal
- Fed Rate-Cut Exuberance Ebbs After Jobs Data, Boosting US Yields – Bloomberg
- F.D.A. Approves First Gene-Editing Therapy in Humans, for Sickle Cell – New York Times
- Americans Rush to Portugal Ahead of Changes to Expat Tax Breaks – Bloomberg
- Retail Group Retracts Startling Claim About ‘Organized’ Shoplifting – New York Times
Views and Analysis
- On Drug Prices, Biden Opts for Talk Over Action – David Dayen, American Prospect
- Two Parties, Two Wildly Different Spending Solutions, Both Implausible – George F. Will, Washington Post
- An Aid Package That Invests in American Security Goals – New York Times Editorial Board
- Biden Tied Ukraine Aid to Border Security, and It Backfired on Him – Zolan Kanno-Youngs, New York Times
- You Can’t Fix Immigration While Holding Ukraine Hostage – Farah Stockman, New York Times
- The Progressive Case for Bidenomics – Paul Krugman, New York Times
- McCarthy’s Exit May Create Even More Headaches for the Tiny G.O.P. Majority – Robert Jimison, New York Times
- A Sickle Cell Breakthrough Is Here. Now the Hard Part – Lisa Jarvis, Bloomberg
- The Life-and-Death Cost of Conservative Power – Paul Starr, American Prospect
- No, Social Security Isn’t ‘Earned’ – Andrew G. Biggs, Wall Street Journal