Job growth in the United States is expected to have slowed in December, while annual wage growth is likely to have fallen to less than 4% for the first time in two and a half years, perhaps bringing the Federal Reserve one step closer to reducing interest rates.
The Labor Department’s carefully anticipated jobs report on Friday is also likely to show the unemployment rate rising to 3.8% last month from 3.7% in November. Easing labor market conditions would add to statistics released last month indicating a sharp drop in inflation in November, perhaps cementing financial market expectations for a rate decrease in March.
According to the research, the economy averted a recession last year and is expected to rise through 2024 as labor market resiliency boosts consumer spending.
“Right now, employers are hiring to keep the doors open, rather than to expand, but they’re also not letting workers go,” said Elizabeth Crofoot, senior economist at Lightcast in Washington. “That’s close to the ‘Goldilocks’ job market that the Fed has been trying to achieve.“
According to a Reuters poll of experts, nonfarm payrolls likely grew by 170,000 last month after increasing by 199,000 in November. With no modifications to the October and November payroll estimates, this would imply that the economy gained around 2.722 million jobs in 2023, a significant decrease from the 4.793 million positions added in 2022.
This indicates a softening in labor and economic demand after 525 basis point rate rises by the US Federal Reserve since March 2022.
To keep up with the rise in the working-age population, around 100,000 new jobs are required each month.
Unseasonably warm weather is believed to have helped hiring at construction sites last month, while employment in the motion picture and sound recording sectors is projected to climb further as the effects of the now-completed strikes fade.
With contradictory indications on the Christmas shopping season, retail employment is a wild card.
IS THERE A RISK?
However, trouble may lurk behind the supposedly strong job market. In recent months, job growth has been focused on a few industries, notably leisure and hospitality, as well as healthcare.
Government hiring as state and local governments work to restore education personnel to pre-pandemic levels has also contributed to job growth.
Since July, monthly government payroll growth has averaged 63,800. According to some economists, this indicates that the labor market is not as robust as the data portrays. Nonetheless, most economists predict slow growth rather than a recession this year.
“The rest of the industries haven’t hired very many people,” said Sung Won Sohn, finance and economics professor at Loyola Marymount University in Los Angeles. “We are going to have a ‘soft landing’ but that hides the pain.“
Goldman Sachs economist Manuel Abecasis, on the other hand, was less worried, pointing out that the three sectors that have dominated hiring have accounted for 40% of employment.
“The industries accounting for 70% of total employment have continued to add jobs on net,” Abecasis remarked. “Looking ahead, we expect total labor demand to continue to ease gradually but the breadth of hiring to widen somewhat.“
The financial markets believe the Fed will start reducing rates as soon as March. Those hopes may gain traction, with average hourly wages anticipated to rise 0.3% in December after climbing 0.4% the previous month.
This would reduce the year-on-year pay rise to 3.9%, the lowest since June 2021, from 4.0% in November.
the previous month, the central bank maintained its policy rate in the current 5.25%-5.50% range, and officials warned in updated economic predictions that the record monetary policy tightening created during the previous two years is coming to an end, with lower borrowing costs expected in 2024.
The government will provide yearly adjustments to the seasonally adjusted household survey data, from which the unemployment rate is calculated, for the previous five years in the December employment report.
Typically, the changes have minimal effect on the unemployment or labor force participation rates.
There has been an increase in the workforce, part of which may be attributed to an increase in immigration. The growing workforce is stifling wage growth and raising the unemployment rate, which has increased from a five-decade low of 3.4% in April to 4.4% now.
“We are certainly getting into territory where, when incorporating productivity, wage growth is more consistent with the Fed’s 2% target,” said Sam Bullard, senior economist at Wells Fargo in Charlotte, North Carolina.
