U.S. employers accelerated hiring in December, adding 216,000 workers to their payrolls, the Labor Department announced Friday.
The unemployment rate remained unchanged from 3.7% last month.
Economists had expected the economy to grow by 170,000 jobs after it was reported that employment would rise by 199,000 in November and 150,000 in October. The November figure was revised downward to 173,000, and the October figure was revised downward to 105,000. This would result in a total loss of 71,000 jobs.
Employer payrolls increased by 262,000 in September. Employment increased by 227,000 in August.
The unemployment rate was expected to rise to 3.8%.
The economy added a total of 2.3 million jobs in 2023, the lowest number since the pandemic ended and Joe Biden took office. But it's still a significant job increase compared to pre-pandemic levels, much of it driven by sectors still rebuilding from lockdowns and pandemic-induced mass layoffs. The last time the economy added this many jobs in a year was 1999.
Strong private and government sector growth, better-than-expected wage levels
Private employment rose by 164,000, up from 136,000 in November and just 44,000 in October. Government employment increased by 52,000, led by state and local hiring.
Average hourly wages rose 0.4% in December, higher than expected. Compared to a year ago, average hourly wages are up 4.1%, a faster 12-month increase than the 4% recorded the previous month. Economists had expected wage growth to contract further, to 0.3% in the month and 3.9% over the past 12 months.
Slowing employment and wage growth had raised market expectations that the Fed would finish raising interest rates and begin lowering them in the first half of next year. At its December, November, and September meetings, the Federal Reserve decided to keep interest rates on hold as it assesses how early interest rate hikes would affect the economy. The Fed last raised interest rates in July.
Will the Fed's interest rate cut be delayed?
Before the release of the December jobs report, the market was predicting that the Fed would cut interest rates at its March meeting, and that there would be four more rate cuts by the end of the year, for a total of five rate cuts. The Federal Reserve is scheduled to meet eight times this year, starting with one at the end of January.
The market implied probability that the Fed would cut interest rates in March was as high as 90% last week. This week, it fell from 75% to 65%. On Friday, it fell to 57% in immediate reaction to the jobs report.
The yield on the 10-year U.S. Treasury rose above 4% on Friday morning, and stock futures fell.
The Federal Reserve is trying to cool labor demand, concerned that rising wages could increase upward pressure on inflation. These efforts appear to be paying off as the number of job openings has declined and employment growth has slowed in recent months.
The Fed has been watching wages closely, concerned that higher wages could reignite inflation. The higher-than-expected increase in the latest report suggests that inflationary pressures may be building again. Most economists believe wage growth would need to fall below 3% on a 12-month basis for the Fed to sustainably reach its 2% target.
Inflation has fallen significantly, but remains well above the Fed's 2% target. The latest figures from the Commerce Department show the personal consumption price index rose 2.6% in the 12 months to November, while core prices rose 3.2%.
The number of new unemployment insurance claims last week fell by 18,000 to 202,000, lower than expected. Billing may be unstable around holidays. Continuing claims decreased by 31,000 to 1,855,000.
Payroll processor ADP, which produces independent metrics on private sector employment, said Thursday that companies added 164,000 employees in December. The forecast was for 115,000 jobs. ADP announced that the private sector added 103,000 jobs in November.
