The US labor market closed out 2023 on a strong note as the pace of hiring was stronger than expected, the Labor Department reported on Friday.Thank you for reading this post, don't forget to subscribe!
The December jobs report showed that employers added 216,000 jobs for the month, while the unemployment rate remained at 3.7%. Payrolls growth marked a sharp increase from November’s revised 173,000. October also dropped from 150,000 to 105,000, painting a slightly less strong picture of growth in the fourth quarter.
Economists surveyed by Dow Jones were expecting payrolls to increase by 170,000 and the unemployment rate to rise to 3.8%.
A more comprehensive unemployment measure that includes discouraged workers and people who hold part-time jobs for economic reasons saw the rate rise to 7.1%. This increase in the “real” unemployment rate came as the household survey used to calculate the unemployment rate showed a decline of 683,000 in the number of job holders.
The report, with revisions to previous months’ calculations, brought 2022-2023 job gains to 2.7 million, or a monthly average of 225,000, down from 4.8 million, or 399,000 per month.
The market reacted negatively to the report, with stock market futures falling and Treasury yields rising sharply.
The increase in hiring was driven by an increase of 52,000 in government jobs and an increase of 38,000 in health care-related sectors such as ambulatory health care services and hospitals. Leisure and hospitality contributed 40,000 to the total, while social assistance increased by 21,000 and construction added 17,000. The Labor Department said retail trades rose by 17,000 as the industry remained mostly flat since the start of 2022.
On the downside, there was a loss of Rs 23,000 in transportation and storage.
The report showed that inflationary pressures, despite easing elsewhere, are still prevalent in the labor market. Average hourly earnings rose 0.4% on the month and 4.1% from a year earlier, both exceeding respective estimates of 0.3% and 3.9%.
Futures markets also reacted, reducing the likelihood of a rate cut by the Federal Reserve in March by nearly 55%.
“Today’s report highlights the tough road ahead for the Fed on its journey to 2% inflation,” said Andrew Patterson, senior international economist at Vanguard. “The decision on when to cut policy rates for the first time remains for the second half of the year in our view.”
Friday’s data adds to the case that the US economy is defying expectations of a recession, despite the Fed’s inflation-fighting campaign, which has raised 11 interest rates by a total of 5.25 percentage points through March 2022, the most among the 40 Aggressive monetary policy is tight. Year.
At their December meeting, Fed officials released projections that indicated they could cut interest rates by three-quarters of a percentage point this year. However, as the market expects the central bank to be more aggressive, futures traders could price in up to six cuts.
The belief that the Fed may start cutting is driven by the idea that inflation will continue to decline after hitting a 41-year high in mid-2022. Inflation is still above the Fed’s 2% target, but has been making steady progress since the increase began.
However, Friday’s report could challenge the Fed’s market narrative quite simply.
“Jobs growth remains as resilient as ever, increasing doubts that the economy will be ready for a policy rate cut in early March,” said Seema Shah, chief global strategist at Principal Asset Management. “Indeed, recent labor market data generally point in the same direction: strength.”
Economic growth remains solid after consecutive negative-growth quarters starting in 2022. Gross domestic product is on track to grow at a 2.5% annual pace in the fourth quarter, according to the Atlanta Fed’s GDP Now real-time tracker of economic data.
Consumers have also been resilient. Holiday spending could reach a record level this year, rising 5% to $222.1 billion, according to estimates from Adobe Analytics.
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