The Labor Market Ends the Year with a Solid Job Gain
The US added 223,000 jobs in December, and the unemployment rate fell -0.2 ppts to 3.5%. Another solid gain in employment means that for the full year of 2022 employment rose by 4.5 million in 2022 (an average monthly gain of 375,000). In December, the number of long-term unemployed fell -146,000 to 1.1 million while the labor force participation rate grew 0.2 ppts to 62.3%. In terms of industries, the leisure and hospitality industry grew the most, adding 67,000 jobs. This was supplanted by increases of 55,000 in the healthcare industry and 28,000 in construction. The health addition to employment in December supports the narrative that labor demand is still strong; however, the advance in the labor force participation rate means that this doesn’t have to lead to further labor market tightness. Indeed, wage growth has started to decelerate with an increase of just 0.3% MoM. This resulted in a slowdown in the annual pace to 4.6% YoY, down from 4.8% YoY. This trend in wages was similar across both goods and services sectors: goods sector wages grew 0.4% MoM and 4.4% YoY, and service sector wages grew 0.3% MoM and 4.6% YoY.

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This gradual decline is probably not going to be good enough for the Fed which will hope to see wages follow more closely with the cooling CPI and PCE inflation. In the end, its objective will be to suppress labor demand which has clearly not happened in the second half of 2022 like FOMC members projected. This December jobs report will reinforce the intentions to reach a Fed funds rate of 5% and potentially even 5.5% if wages and inflation prove to be stickier.

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