American labor market forces ahead, but wage growth is losing momentum
The US economy added jobs at a solid clip in Decemberand pushing the unemployment rate back to a pre-pandemic low of 3.5% as the labor market remains tight, but Federal Reserve officials can take some comfort from a moderation in wage growth.
Nevertheless, the US central bank’s battle against inflation is far from won. The Labor Department’s closely watched employment report on Friday also showed household employment rebounded by a full 717,000 jobs last month.
Recent declines in household employment had led to speculation that nonfarm payrolls, the main measure of employment gains, were overstating job growth.
The resilience of the labor market, despite the Fed in March starting its fastest rate hike cycle since the 1[ads1]980s, is underpinning the economy by sustaining consumption. However, it increases the risk The Fed could raise its target rate above the peak of 5.1% it projected last month and keep it there for a while.
“The labor market remains robust, but is losing steam and the shortage of workers remains intense,” said Sal Guatieri, senior economist at BMO Capital Markets in Toronto. “While wage growth has moderated, it remains far from consistent with price stability. Don’t look for the Fed to tone down its hawkish talk or slow the pace of rate hikes on February 1.”