A U.S. labor market report cited stronger-than-expected job numbers in December, indicating that many employers have remained resilient through decades-high inflation and the Federal Reserve’s bid to slow economic growth.
The U.S. economy added 223,000 jobs in December, and unemployment edged down to 3.5%, the U.S. Bureau of Labor Statistics (BLS) said Friday in its Employment Situation Summary.
BLS bases its report on two surveys. One measures non-farm employment, hours, and earnings by industry. The second is a household survey that logs labor force status, including unemployment.
Notable job gains manifested in leisure and hospitality (+67,000), health care (+55,000), construction (+28,000), and social assistance (+20,000).
However, even with the stronger-than-expected job gain, the U.S. added 33,000 fewer jobs in December than the month prior.
Analysts had expected the labor market to add 200,000 jobs in December, slightly below the actual numbers for the month and the lowest increase all year.
Other major industries showed little change in employment, including the sectors for wholesale trade, information, and financial activities, according to the BLS report.
The unemployment rate, on the other hand, edged down to 3.5% from 3.6% the month before and has remained in a narrow range since March 2022.
Overall, the number of unemployed persons for the month fell from 6 million in November to 5.7 million in December, according to the household survey portion of the report.
Average hourly earnings rose by 0.3% for the month and by 4.6% annually, the lowest 12-month increase since August 2021.
Estimates placed monthly wage growth at 0.4% and year-over-year expectations at 4.8%, slightly above actual results, per CNBC.
“From the market’s perspective, the main thing they’re responding to is the softer average hourly earnings number,” said Drew Matus, chief market strategist at MetLife Investment Management.
“People are turning this into a one-trick pony, and that one trick is whether this is inflationary or not inflationary. The unemployment rate doesn’t matter much if average hourly earnings continue to soften.”
The Dow Jones surged 700 points Friday following the report’s release, with all major stock market indices rising more than 2% throughout the day.
“There’s some indication that things are moving in the right direction,” said Mike Loewengart, head of model portfolio construction for Morgan Stanley’s Global Investment Office.
“We’re seeing the impact of the blunt tools of monetary policy take effect,” he added. “I don’t think this is going to sway the Fed from a few additional raises going forward, but it no doubt is encouraging to see a moderation in wages.”
As monetary policymakers embark on another year of restrictive policy measures, the Fed has signaled that it would not consider cutting interest rates until there was sufficient and convincing evidence that inflation was returning to its 2% target range.
“Just like 2022, 2023 is going to be a challenging year,” said Stephen Patterson, director of investor success at Key City Capital.
“I see interest rates increasing throughout the first two quarters and ultimately settling around 5.1% to 5.5% before rolling back from there,” he added, sharing his 2023 forecast with The Dallas Express in a December interview.
Patterson also predicts that inflation will continue to get beaten down due to the Fed’s higher rates, though high borrowing costs are likely to trigger more layoffs.
The Fed is expected to continue raising rates through 2023, albeit at a more modest pace. Fed officials estimate raising the terminal rate to within a range of 5.1% to 5.3%.
Economists expect to see another quarter-percentage-point increase at the Fed’s next Federal Open Market Committee policy meeting, due to commence on February 1.
The employment situation report for January is scheduled to be released on Friday, February 3.