U.S Employment increased by 223,000 in December, which was lower than in previous months but higher than anticipated. US jobs growth slowed for a fifth consecutive month in December as a result of the Federal Reserve’s aggressive interest rate rises, which squeezed economic activity despite the historically tight labor market in the US.

Employment increased by over 200,000 in December, which was less than in previous months but more than expected.

The world’s largest economy added 223,000 jobs in the last month of 2022, which was lower than the increase in November 256,000 jobs and far below the 714,000 job gain in February of last year. The majority of economists had anticipated a 200,000 rise.

In 2022, monthly job growth averaged 375,000 following the increase in December. Since August, the number of new jobs added has decreased monthly.

The labor market still demonstrates a resilience that will likely force the Fed to continue raising interest rates this year, despite the slowed rate of job growth.

According to data released by the Bureau of Labor Statistics, the unemployment rate unexpectedly fell to 3.5%, returning to a record low.

Citigroup economist Veronica Clark stated, “This is still a very tight labor market.” An economist sees a low unemployment rate as “wage upside risks in the future.”

However, investors bet that the Fed would not need to be as aggressive with its policy tightening in the end because of slowing wage growth in December. According to Friday’s ISM data, a sharp decline in services activity further supported stocks. In late-morning New York trading, the S&P 500 was up 1.6%, while the Nasdaq Composite was up 1.4%.

The two-year Treasury yield, which is affected by changes in expectations for interest rates, fell 0.19 percentage points to 4.26 percent, indicating a significant increase in the debt instrument’s price. The benchmark 10-year Treasury note yield, which is used as a proxy for global borrowing costs, decreased by 0.14 percentage points to 3.58 percent.

In an effort to alleviate price pressures that have pushed inflation to multi-decade highs, the US central bank is actively attempting to cool the labor market and reduce demand for new hires. In one of its most aggressive campaigns in its history, the Fed has raised its benchmark policy rate from close to zero to just below 4.5% since March.

Price pressures have taken hold in the economy’s services sector despite the fact that the worst of the inflation shock appears to have passed. This week, Gita Gopinath, the first deputy managing director at the IMF, gave an interview to the Financial Times in which she advised the Federal Reserve to “stay the course” when it comes to tightening rates, arguing that inflation in the United States has not “turned the corner yet.”

Fed governor Lisa Cook warned on Friday not to “put too much weight” on recent inflation data that she said looked “favourable.” She stated that she is “closely monitoring” labor costs, which she claimed are crucial to the direction inflation will take in the future.

Wage growth is still growing at a rate that is significantly below the 2% inflation target set by the Fed, despite a shortage of workers that, according to Fed officials, will not be easily reversed.

Average hourly earnings increased by 0.3% in December, which was lower than anticipated and slower than the previous period, which was revised lower. It is increasing by 4.6% annually. At 62.3%, the labor force participation rate—which measures the proportion of Americans who are employed or looking for work—showed little change.

The leisure and hospitality industry saw the most job growth, adding 67,000 positions in December. The construction industry added 28,000 jobs, while the healthcare sector saw a 55,000 increase in employment.

Retail, manufacturing, as well as transportation and warehousing, were among the industries with the smallest increases in employment.

President Joe Biden said in a statement after the report that the most recent job gains show “a transition to steady and stable growth.”

In the midst of a “cost-of-living squeeze,” the US president stated, “These historic gains in employment and unemployment are giving workers more power and American families more breathing room.”

The Federal Reserve’s policymakers have acknowledged that job losses and a higher unemployment rate are necessary to contain inflation. The Fed’s most recent individual projections indicate that as the benchmark policy rate reaches 5% and remains there for an extended period of time, the majority of officials anticipate a rise in the unemployment rate as high as 4.6% this year and next.

Esther George, the Kansas City Fed’s incoming president, stated on Thursday, “Holding [above 5%] until we get evidence that inflation is actually coming down is really the message we’re trying to put out there.”

In general, traders in federal funds futures anticipate that the Fed will move closer to the so-called “terminal” level in smaller increments than the half-point and 0.75 percentage point increases it has used during this campaign of tightening. The odds of a quarter-point rate increase at the February meeting are currently 66%, according to CME Group.

In a Friday speech, Richmond Fed president Tom Barkin stated, “Now, with forward-looking real rates positive across the curve and therefore our foot unequivocally on the brake, it makes sense to steer more deliberately as we work to bring inflation down.”

Economists warn that if the Fed implements its plans, significant additional job losses could occur. In a joint survey conducted by the Financial Times and the University of Chicago Booth School of Business Initiative on Global Markets last month, respondents predicted that the unemployment rate would reach at least 5.5% next year as the economy edged closer to a recession.

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