In December, US companies surpassed hiring expectations, accompanied by a substantial increase in wages, casting uncertainty on the market's anticipation of a Fed interest rate cut in March.
That being said, the U.S. Department of Labor's latest employment report revealed some setbacks. October and November witnessed a job deficit of 71,000 compared to previous estimates.
While the unemployment rate held steady at 3.7%, this stability was overshadowed by 676,000 people leaving the labor force, nearly destroying participation gains since the beginning of the year.
Despite these challenges, the report underscores the economy's resilience, avoiding a recession in the past year and likely sustaining growth through 2024, buoyed by a robust labor market supporting consumer spending.
Nonfarm payrolls surged by 216,000 last month, surpassing economists' expectations of a 170,000 gain. The 2023 job creation tally reached 2.7 million, marking a decline from the 4.8 million jobs generated in 2022.
This suggests an economic demand slowdown following a series of interest rate hikes by the US Central Bank since early 2022. Sustaining labor force growth necessitates the creation of approximately 100,000 jobs monthly.
Public sector hiring also contributed to job growth, particularly as local and federal authorities sought to restore education workforces to pre-pandemic levels, resulting in a 52,000-job increase last month.
Despite these positive aspects, the labor market remains tight, with 1.40 job vacancies for every unemployed person, exerting upward pressure on wages that remain elevated.
In December, average hourly pay rose by 0.4%, mirroring the previous month's increase, pushing annual wages to 4.1% from November's 4.0%.
This strong wage growth exceeds pre-pandemic averages significantly and aligns with the Fed's 2% inflation target range of 3% to 3.5%.
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