The U.S. labor market stayed strong last month and wage gains cooled, reducing risks of a near-term recession and giving the Federal Reserve room to slow interest-rate hikes.
Nonfarm payrolls increased 223,000 in December, capping a near-record year for job growth, a Labor Department report showed Friday. The advance followed a 256,000 gain in November.
Average hourly earnings rose 0.3% from a month earlier and 4.6% from December 2021 after November's previously eye-popping gain was revised lower. The deceleration is likely welcome news for Fed officials, who see wage pressures, particularly in the service sector, as a key hurdle to achieving their 2% inflation goal.
The unemployment rate decreased by 0.1 percentage point to 3.5%, matching a five-decade low, as participation inched higher. The median estimates in a Bloomberg survey of economists had called for a 203,000 advance in payrolls and for wages to climb 0.4% from the prior month.
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The job gains were led by health care and social assistance, leisure and hospitality, and construction. Several sectors were little changed.
The S&P 500 rose and Treasuries rallied as investors speculated the easing in wage pressures would lead the Fed to pursue less restrictive policy in the coming months. Separate data showed a gauge of services activity plunged last month.
The government figures underscore both the enduring strength of the jobs market and how a persistent imbalance between the supply and demand for labor is keeping upward pressure on earnings. That said, the welcome uptick in participation paired with a slowdown in wage growth suggest some of the tightness in the labor market is starting to unwind.
A sustained deceleration in wage growth could offer some comfort to central bank officials that a key part of the inflation puzzle is losing steam.
"It's not that the Fed wants fewer jobs. What they want is lower wage growth, more because they're worried about persistent inflation," Randall Kroszner, a former Fed governor and now an economics professor at the University of Chicago Booth School of Business, said on Bloomberg Television.
The data "may make it more likely that they go 25 basis points rather than 50 basis points" at the February and March meetings, he said.
Looking ahead, central bank officials see the unemployment rate rising by about a full percentage point this year, while many other economists predict the US will slip into a recession.
While overall job openings remain high and layoffs low, there are growing pockets of weakness in the labor market, particularly in sectors like technology and real estate. Non-durable goods manufacturing, temporary-help services and information all shed workers in December, the Labor Department report showed.
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The concentrated nature of payroll gains paired with the fewest hours worked since the onset of the pandemic temper some optimism around the data.
Separate figures out Friday showed a gauge of activity in the services industry contracted in December for the first time since May 2020. The Institute for Supply Management's measure of services employment shrank for the second time in three months, with respondents noting both trouble filling positions and hiring restraint tied to economic concerns.
Just this week, Amazon said it plans to cut more than 18,000 employees — the biggest reduction in its history — while the real estate brokerage Compass Inc. announced further layoffs. Data from Challenger, Gray & Christmas Inc. show job-cut announcements, while down from the prior month, were up 129% from December 2021
The labor force participation rate — the share of the population that is working or looking for work — ticked up to 62.3%, and the rate for workers ages 25-54 rose.
The jobs report is made up of two surveys — one of businesses and the other of households. While the household survey depicted a weaker picture of the job market than its counterpart in prior months, the December figures showed a sharp 717,000 rebound in employment.
The report also incorporated annual revisions to the household survey data, which informs statistics like the unemployment rate and participation rate. Seasonally adjusted data for the most recent five years were subject to revision.
