Topline
The unemployment rate unexpectedly fell, and the labor market added back more jobs than expected in December, but economists note the quality of jobs available to Americans is deteriorating as major employers start to slash costs—slowing down wage growth that has been fueling inflation in a positive sign for the Federal Reserve’s campaign to tame rising prices.
The latest jobs report follows a slew of data points suggesting the labor market remains strong … [+]
Key Facts
Total employment increased by 223,000 in December—better than the 200,000 new jobs economists were expecting, according to data released Friday by the Labor Department.
Despite waves of corporations slashing their workforce, the unemployment rate fell to 3.5%—coming in below expectations for it to tick up to 3.7% and instead hitting the lowest level since September.
The report comes after payroll processor ADP on Thursday also signaled the labor market remains healthy overall, reporting private employers added 235,000 jobs in December—much better than the 153,000 economists were expecting.
“The labor market is strong, but fragmented,” ADP chief economist Nela Richardson said in a statement, noting small and medium-sized businesses saw a resurgence in job growth last month, adding nearly 400,000 jobs, while large establishments reported 151,000 fewer jobs.
“The quality of jobs available to American workers has declined,” Comerica Bank chief economist Bill Adams explains of the fragmented labor market, noting technology, finance and manufacturing firms are laying off workers, while lower-paying industries like leisure and hospitality continue to add jobs.
Over the last year, average hourly earnings have increased by 4.6% to $32.82—below the 5% growth economists were projecting, the Labor Department reported Friday.
Crucial Quote
“Layoffs of white-collar workers, especially in the tech industry, have attracted a lot [of] attention, but the losses have had little impact on the overall labor market,” First American economist Odeta Kushi said Friday, noting tech jobs make up less than 2% of overall employment.
Key Background
The labor market forcefully led the post-pandemic economic recovery and has remained strong despite some sectors taking a hit as a result of the Fed’s interest rate hikes, which work to tame inflation by slowing down the economy. Fed officials have long pointed to the labor market’s strength as evidence that the economy can withstand additional rate hikes, but investors have been nervous about the potential implications—particularly with the stock market already feeling the burn. After surging nearly 27% in 2021, the S&P tumbled 19% last year.
What To Watch For
The Fed’s next interest rate announcement is slated for February 1. Economists at Goldman Sachs expect the Fed will deliver quarter-point hikes at their next three meetings and then hold top interest rates at 5.25%, the highest level since 2007, for the rest of the year. Incoming inflation data, however, could lower—or raise—these forecasts. Comerica forecasts the unemployment raise will rise to about 4.5% as rapid interest rate hikes, high inflation and downturns in Europe and China make a mild recession more likely than not by the middle of this year.
Further Reading
Worsening Layoffs Confirm Tech Selloff Could Linger ‘A While Longer’ (Forbes)
Source: https://www.forbes.com/sites/jonathanponciano/2023/01/06/unemployment-rate-falls-to-35–but-job-quality-is-deteriorating-as-fed-works-to-fight-inflation/