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US Job Gains Robust in December as Wage Growth Slows

Jan. 6, 2023
"We still have work to do to bring down inflation... But we are moving in the right direction," President Joe Biden said in a statement.

U.S. job gains exceeded expectations in December while unemployment ticked down, a closely-watched government report said Friday, in a sign the labor market remains hotter than hoped by policymakers seeking to lower inflation.

While a strong labor market may fuel optimism that the world's biggest economy can stave off a major downturn despite an aggressive series of interest rate hikes, it is also an area of concern for the Federal Reserve as high wages can feed into inflation.

But in an encouraging sign for the Fed, the latest data showed a tempering of wage growth.

Last month, average hourly earnings rose less than anticipated by 0.3% to $32.82, while November's jump was revised lower, the Labor Department said.

Overall, employers added 223,000 workers, down from the revised 256,000 figure in November, though still higher than analysts expected.

While unemployment is typically expected to edge up as interest rates rise, the jobless rate dipped to 3.5% as participation moved higher.

Unemployment has hovered between 3.5% and 3.7% in recent months, and the latest figure is the lowest since February 2020.

President Joe Biden touted the fall in joblessness while striking an optimistic note on broader efforts to combat inflation.

"This moderation in job growth is appropriate, and we should expect it to continue in the months ahead, even as we maintain resilience in our labor market recovery," Biden said in a statement.

"We still have work to do to bring down inflation... But we are moving in the right direction," he added.

- Struggle to fill vacancies -

In December, "notable job gains occurred in leisure and hospitality, health care, construction and social assistance," the Labor Department said.

But it added that employment in leisure and hospitality still remains below its pre-pandemic level.

Because the labor market remains tight, "companies are still being forced to raise wages to retain workers, and are still struggling to fill vacancies," said Julia Pollak, chief economist at job search platform ZipRecruiter.

This risks pushing wages higher.

Average hourly earnings have risen 4.6% in the past 12 months, the Labor Department said, as many companies experiencing labor shortages after disruption from the pandemic have been keen to find and retain workers.

In a promising sign, that figure was still lower than the 4.8% annual jump in November and larger spikes earlier this year.

"For inflation to fall, we have to see wages have a healthy pace of growth that doesn't outpace the ability of firms to absorb those costs without raising their prices," said Nela Richardson, chief economist at payroll firm ADP.

"Any slowdown in wage growth is a good signal in terms of inflation," she told reporters this week.

- Slowing wage growth -

Employment data has been signaling "positive momentum in job growth and moderating wages," economist Rubeela Farooqi of High Frequency Economics said Friday.

To combat inflation and cool demand, the Fed hiked interest rates seven times last year including a series of steep, back-to-back increases before slowing in December.

"In terms of Fed policy, while job growth remains solid and the unemployment rate is low, a deceleration in wages in December and the downward revision to November will be welcome news," Farooqi said.

This could open doors to a slower pace of rate increases in the coming months, she added.

However, Nancy Vanden Houten of Oxford Economics cautioned that gains in jobs and annual earnings are still "above the pace the Fed sees as consistent with slowing inflation," meaning those looking for a cut in interest rates will likely be disappointed.

Interest-sensitive sectors like housing have slumped following rate hikes, but other areas prove more resilient.

Job growth in the past year has risen on the back of "catch-up hiring" in the Covid-19 recovery, said Ian Shepherdson, chief economist at Pantheon Macroeconomics.

But this effect is fading across most of the economy, he said.

"We think substantially slower payroll growth is coming very soon," he added.

Copyright 2023, Agence France-Presse

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