The US labor market is improving, but wage growth is losing momentum
The US economy added jobs at a solid clip in Decemberpushing the unemployment rate back to a pre-pandemic low of 3.5 percent as the labor market remains tight, but Federal Reserve officials could take some comfort from slowing wage growth.
Still, the US central bank’s fight against inflation is far from won. The closely watched Labor Department employment report on Friday also showed a rebound in household employment, with a whopping 717,000 jobs added last month.
Recent declines in household employment have fueled speculation that nonfarm payrolls, the main measure of employment growth, are overstating job growth.
The resilience of the labor market, even though the Fed last March began its fastest rate-hiking cycle since the 1980s, is supporting the economy by supporting consumer spending. However, this increases the risk of The Federal Reserve may raise its target interest rate above the peak of 5.1% it forecast last month and keep it there for some time.
“The labor market remains resilient, but it is losing momentum and labor shortages remain intense” said Sal Guatieri, senior economist at BMO Capital Markets in Toronto. “Although wage growth has slowed, it is still far from matching price stability. Don’t expect the Fed to tone down its hawkish rhetoric or slow the pace of rate hikes on February 1.”
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