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Jobs gains were strong in December, with a 256,000 increase, surprising analysts who had expected a moderating trend. Hiring jumped in the retail sector, reversing job losses in November, as stores waited longer than usual to add staff for the Christmas rush. The health care sector continued its hiring spree, adding 46,100 workers, and state and local governments continued to play catchup after the pandemic by adding 27,000 workers. Social assistance agencies added 23,400 jobs. Durable goods manufacturers lost 16,000, mostly in automotive and semiconductors.
The strength in the labor market pushed the unemployment rate back down to 4.1%, from 4.2% previously. The number of people working part-time because of slack business conditions saw a big drop in December, hitting the lowest level in six months.
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Growth in average hourly earnings dipped slightly, from 4.0% to 3.9% over the previous 12 months for all workers, and from 3.9% to 3.8% for production workers. Progress on reducing wage growth had stalled in the second half of last year, but could be resuming now. The Federal Reserve would like to see annual wage gains come down to 3% or 3.5%, given that stronger wage growth could make it harder to bring overall inflation down to the Fed’s goal of 2%. The Fed would also like to see monthly job gains drop below 200,000, which would suggest that the labor market will not overheat again.
A return to more typical levels of hiring in the labor market is likely, with future monthly job gains likely to be in the 150,000 range. Recent job market strength has been far above that of labor force growth. Eventually, state and local government agencies will fill the vacancies they experienced during the pandemic. Also, the goods-producing sector is still showing weakness. There were job losses in nondurable manufacturing, and in e-commerce delivery and warehousing. Temp jobs may continue their downtrend of more than two years. These jobs are often in the manufacturing sector and tend to be cut first when demand for manufactured goods softens.
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