U.S. job growth slowed for a fifth consecutive month in December after aggressive interest rate hikes by the Federal Reserve weighed on economic activity even as the U.S. labor market remained historically tense.
Biggest in the world economy added 223,000 jobs in the last month of 2022, lower than the downwardly revised increase of 256,000 recorded in November and well below last year’s peak of 714,000 in February. Most economists expected an increase of 200,000.
After December’s increase, monthly job growth has averaged 375,000 in 2022. The number of jobs added has fallen every month since August.
Despite the slowing pace of job growth, the labor market is still showing resilience that will likely give the Fed the confidence it needs to move forward with its plans for further interest rate hikes.
The jobless rate unexpectedly fell to 3.5%, returning to an all-time low, according to data released by the Bureau of Labor Statistics.
The US central bank is actively trying to calm the Workforce market and dampen demand for new hires as it seeks to ease price pressures that have driven inflation to multi-decade highs. Since March, the Fed has raised its key rate from near zero to just under 4.5% in one of the most aggressive campaigns in its history.
Although the worst of the inflationary shock appears to have passed, price pressures have taken in hand in the service sector of the economy. In an interview with the Financial Times this week, Gita Gopinath, the first deputy managing director of the IMF, urged the Fed to “stay the course” in terms of tightening, arguing that inflation in the United States has not “turned the corner yet”.
Amid a labor shortage that Fed officials say will not be easily reversed, wage growth is proceeding at a pace far out of step with the Fed’s 2%. inflation target.
In December, average hourly earnings rose another 0.3%, less than expected and more slowly than in the previous period. On an annual basis, it amounts to 4.6%. The labor force participation rate, which tracks the share of Americans employed or looking for work, was little changed at 62.3%.
Fed policymakers have recognized that eradicating inflation will require job losses and, as a result, higher unemployment. According to the latest individual projections released by the Fed, most officials see the unemployment rate climbing to 4.6% this year and next, as the benchmark policy rate rises above 5% and remains there for a period. prolonged.
“Holding [above 5 per cent] Until we have proof that inflation is coming down, that’s really the message we’re trying to get across,” outgoing Kansas City Fed chair Esther George said Thursday.
In a similar tone this week, the Minneapolis Fed’s Neel Kashkari said he expects the central bank to raise the federal funds rate by another percentage point in the coming months. He will be a voting member of the Federal Open Market Committee which sets policy this year.
Should the Fed follow this aggressive course, economists warn that deeper job losses could be on the horizon. Those interrogates last month, in a joint survey by the FT and the University of Chicago Booth School of Business’s Initiative on Global Markets, predicted the jobless rate will hit at least 5.5% next year as the economy would tip into a recession.
0 Comments