The US economy ended 2023 on a strong note.
The labor market added 216,000 people to employment in December, up from 173,000 in the previous month. Economists polled by Bloomberg had expected 175,000.
The unemployment rate for the month was 3.7%, flat from November's unemployment rate, according to Bureau of Labor Statistics data released Friday. Economists had expected the unemployment rate to rise to 3.8%.
Investors were watching the report for signs of whether the Fed could achieve a so-called soft landing, in which inflation retreats to its 2% target without a recession. This could affect the Fed's rate cut schedule this year.
Key to the soft landing goal is the normalization of the labor market, which has been intensified during the pandemic. ADP Chief Economist Nela Richardson told Yahoo Finance Live that the Fed is likely to keep an eye on December's sharp rise in job growth. “What we're seeing in businesses is persistent hiring, especially in small and medium-sized businesses,” Richardson said.
The unexpected strength in the labor market also helped consumers' wallets.
Wages, which are closely watched as an indicator of inflation and an indicator of how much influence workers have on the labor market, increased by 0.4% from the previous month and by 4.1% from the previous year. Economists had expected wages to rise 0.3% from last month and 3.9% from a year ago.
However, several key metrics declined. The labor force participation rate fell to 62.5% from 62.8% in the previous month, and the average weekly working hours decreased slightly from 34.4 to 34.3 hours.
“While there is a lot of noise in the data, there is enough evidence that labor market conditions will ease further and broader inflation will decline for the Fed to begin cutting rates in May,” Nancy said. “We remain hopeful that evidence will emerge.” Vanden Houten, chief U.S. economist at Oxford Economics, said in a note.
The largest increase in employment in Friday's report was in the government sector, which added 52,000 jobs. Meanwhile, in the healthcare sector he added 38,000 jobs.
However, the biggest losses were in transport and warehousing, with 23,000 jobs lost, and social assistance, with 21,000 jobs lost.
Data released earlier this week showed signs that the labor market is improving the balance between supply and demand for workers. On Wednesday, the latest jobs and turnover survey revealed that job openings in November were at their lowest level since March 2021.
Additional labor market data released by ADP on Thursday showed private payrolls grew more than expected last month, while wage growth continued to slow. Specifically, ADP noted that the decline in wage growth is a welcome sign in the fight against inflation, and Richardson said in a press release that “the risk of a wage-price spiral has all but disappeared.” .
Josh Schafer is a reporter for Yahoo Finance.
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