The US labor market is improving, but wage growth is losing momentum
The U.S. economy added jobs at a solid level in Decemberbringing the unemployment rate down to a pre-pandemic low of 3.5% as the labor market remains tight, but Federal Reserve officials could take some comfort from a moderation in wage gains.
However, the US central bank’s fight against inflation is far from won. The Labor Department’s closely watched jobs report on Friday also showed that household employment rebounded by 717,000 jobs last month.
Recent declines in household employment have fueled speculation that nonfarm payrolls, the main measure of employment gains, were exaggerating job growth.
The resilience of the labor market, although the Fed launched its fastest cycle of interest rate hikes since the 1980s last March, is supporting the economy by supporting consumer spending. However, this increases the risk that The Fed could raise its target interest rate above the 5.1% peak it forecast last month and hold it there for some time.
“The labor market remains resilient but is losing momentum and labor shortages remain intensesaid Sal Guatieri, senior economist at BMO Capital Markets in Toronto. “While wage growth has moderated, it is still far from consistent with price stability. Don’t expect the Fed to cut back on its hawkish rhetoric or slow the pace of rate hikes on Feb. 1.”