WASHINGTON- US employers hired more workers than expected in December while raising wages at a solid clip, casting some doubt on financial market expectations that the Federal Reserve would start cutting interest rates in March.
There were, however, some cracks in the closely watched employment report from the Labor Department on Friday. The economy added 71,000 fewer jobs in October and November than previously reported. While the unemployment rate held at 3.7 percent last month, that was because 676,000 people left the labor force, almost erasing all the gains in participation since February. Household employment fell sharply and the workweek was on average slightly shorter than in November.
Nonetheless, the report indicated that the economy avoided a recession last year and would likely continue to grow through 2024 as labor market resilience supports consumer spending.
“A gradual labor market cooldown remains in place,” said Scott Anderson, chief US economist at BMO Capital Markets in San Francisco. “However, the lingering labor market resilience and strength in wage growth could keep the Fed on the sidelines for longer than the markets currently expect.”
Nonfarm payrolls increased by 216,000 jobs last month, the Labor Department’s Bureau of Labor Statistics said. Economists polled by Reuters had forecast payrolls rising by 170,000 jobs. The economy added 2.7 million jobs in 2023, a sharp step-down from the 4.8 million positions created in 2022.
That reflected cooling demand in the economy following 525 basis points worth of rate hikes from the US central bank since March 2022. Roughly 100,000 jobs per month are needed to keep up with growth in the working age population.
Government hiring as state and local authorities try to bring education staffing back to pre-pandemic levels led the rise in employment last month, with 52,000 jobs added.
Government payrolls growth averaged 56,000 jobs per month in 2023, more than double the average monthly gain of 23,000 in 2022. Employment in the healthcare sector increased 38,000, spread across ambulatory healthcare services and hospitals. Unseasonably mild weather boosted hiring at construction sites, with payrolls in the industry rising 17,000.
Leisure and hospitality employment gained 40,000. Employment in the industry is below levels seen before the COVID-19 pandemic by 163,000. Retail employment rose 17,400.
Professional and business services payrolls rose 13,000, but temporary help services shed another 33,300 positions. Employment in the sector, seen as a harbinger for future hiring, has declined for 11 straight months.
Manufacturing jobs increased 6,000. But employment in the transportation and warehousing industry fell 22,600.
The labor market generally remains tight, with 1.40 job openings per every unemployed person in November. That is feeding through to wages, which remain elevated.
Average hourly earnings rose 0.4 percent in December, matching the prior month’s gain. That raised the year-on-year increase in wages to 4.1 percent from 4.0 percent in November.
Wage growth is well above its pre-pandemic average and the 3-3.5 percent range that most policymakers view as consistent with the Fed’s 2 percent inflation target.
Financial markets initially reduced the probabilities of a March rate cut to around 53 percent but later boosted them to about 65 percent as traders digested the mixed employment report. Attention now shifts to December’s consumer inflation report, scheduled to be published next Thursday.
Stocks on Wall Street were mixed. The dollar slipped against a basket of currencies. US Treasury prices fell.
The Fed held its policy rate steady in the current 5.25 percent -5.50 percent range last month and policymakers signaled in new economic projections that the historic monetary policy tightening engineered over the last two years is at an end and lower borrowing costs are coming in 2024.
