The unemployment rate unexpectedly fell in November, reflecting signs that the labor market may not be cooling as quickly as many had initially thought.

Data from the Bureau of Labor Statistics released on Friday showed the unemployment rate was 3.7% for the month, down from 3.9% in October. The US economy added 199,000 jobs in November, an uptick from 150,000 the previous month as striking auto workers and Hollywood actors came back to the workforce.

Economists surveyed by Bloomberg expected job gains of 185,000 with unemployment holding steady from the prior month at 3.9%.

Wages, a closely watched indicator for inflation and a gauge of how much leverage workers have in the labor market, increased 0.4% on a monthly basis and 4.1% over last year; economists had expected wages to rise 0.3% over last month and 4% over last year.

Meanwhile, the labor force participation rate ticked higher to 62.8%, up from 62.7% the month prior, while average weekly hours worked moved up slightly from 34.3 to 34.4.

The largest jobs increases in Friday's report were seen in healthcare, where 77,000 jobs were added. Employment in government rose by 49,000, reaching its pre-pandemic level. Leisure and hospitality rose by 40,000.

Labor market data released earlier this week had reinforced a narrative in the market for a so-called soft landing where inflation reaches the Fed's 2% goal without a full blown economic slowdown.

This had investors betting the Federal Reserve was done hiking interest rates and widely expecting rate cuts in 2024. But with another robust month of job gains and the unemployment rate falling back toward historic lows, investors are now upping bets that the Fed might need to hold interest rates at their current level for longer.

As of Friday morning, markets had priced in about a 47% chance the Fed cuts rates by 25 basis points at its March meeting, down from a 55% chance just a day prior, per the CME FedWatch Tool.

"This isn't exactly the type of print they were looking for," Stephanie Roth, chief economist at Wolfe Research, said of the Fed on Yahoo Finance Live Friday morning.

Data released earlier this week had shown signs of a cooling labor market. On Tuesday, the latest Job Openings and Labor Turnover Survey, or JOLTS report, revealed the ratio of job openings to the number of unemployed workers fell to 1.34, its lowest reading since August 2021.

Additional labor market data out Wednesday from ADP showed private payrolls increased more slowly than expected last month and wages continued to fall. Specifically, ADP noted that the drop in leisure and hospitality jobs in November could be a sign of the labor market normalizing, and therefore indicating payroll growth could eventually slow next year.

“Restaurants and hotels were the biggest job creators during the post-pandemic recovery,” said Nela Richardson, chief economist at ADP. “But that boost is behind us, and the return to trend in leisure and hospitality suggests the economy as a whole will see more moderate hiring and wage growth in 2024.”

Josh Schafer is a reporter for Yahoo Finance.

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