US Job

Washington: The US economy maintained a strong pace of job growth in December, with the unemployment rate falling to 3.5%, but with higher borrowing costs as the Federal Reserve battles inflation, labor market momentum could slow significantly by mid-year.

The Labor Department said in its closely watched jobs report on Friday that Nonfarm payrolls increased by 223,000 last month. Data for November was revised to show 256,000 jobs were added instead of 263,000 as previously reported.

The unemployment rate dropped to 3.5% from 3.6% in November. The government revised the seasonally adjusted data for the household survey, from which the unemployment rate is determined, for the last five years.

Average hourly profit rose 0.3% after 0.4% in the prior month. That lowered the year-on-year increase in wages to 4.6% from 4.8% in November. Government data this week showed there were 10.458 million job openings at the end of November, which translated to 1.74 jobs for every unemployed person. The labor market has stayed strong, despite the Fed embarking last March on its fastest interest rate hiking since the 1980s.

Interest-rate sensitive industries like housing and finance, and technology companies, including Twitter, Amazon (AMZN.O), and Meta (META.O), the parent of Facebook, have slashed jobs. However, airlines, hotels, restaurants, and bars are desperate for workers as the leisure and hospitality industry continues to recover from the COVID-19 pandemic.

Labor market versatility is underpinning the economy by sustaining consumer spending. But it raises the risk the Fed could lift its target interest rate above the 5.1% peak the U.S. central bank projected last month and keep it there for a while. The trend in employment growth, however, could slow significantly by mid-year as costly credit weighs on consumer spending and ultimately business investment.

The Fed last year raised its policy rate by 425 basis points from near zero to a 4.25%-4.50% range, the highest since late 2007. Last month, it projected at least an additional 75 basis points of hikes in borrowing costs by the end of 2023.

By Archana

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