Another Expected Premium for US Jobs... Wage Growth Rate Slows (Comprehensive)

[Asia Economy New York=Special Correspondent Joselgina] Despite the Federal Reserve's (Fed) consecutive interest rate hikes and recession concerns, indicators show that the labor market overheating continues. The unemployment rate in December last year fell to 3.5%, the lowest level in decades, and the increase in non-farm payrolls far exceeded market expectations. However, the wage growth rate, which the Fed has been concerned about, appeared to slow down somewhat. The New York stock market also focused on the slowed wage growth rate and is showing a rally.

[Image source=Reuters Yonhap News]

According to the employment report released by the U.S. Department of Labor on the 6th (local time), non-farm payrolls increased by 223,000 last month. Although this is less than the previous month's increase of 256,000, it far exceeds the market forecast of 200,000. This confirms that the labor market remains strong. By sector, job growth was significant in leisure and hospitality (67,000), healthcare (55,000), and construction (28,000).

For the entire last year, a total of 4.5 million jobs were added. The Wall Street Journal (WSJ) reported, "This is the second strongest growth pace since 1940, following 2021."

Along with this, the unemployment rate fell from 3.6% (adjusted) in November to 3.5% in December. This is the lowest level since the late 1960s. The labor force participation rate rose slightly to 62.3% from the previous month but remained 1.0 percentage point lower than before the pandemic (global outbreak).

However, wage growth, which is directly linked to inflation concerns, has somewhat eased. This is a relief for the Fed, which has been struggling with strong employment data recently. The average hourly wage in December rose 0.3% from the previous month and 4.6% year-over-year. The initial market forecasts were 0.4% and 5.0%, respectively, so the actual figures fell short. The year-over-year wage growth rate slowed to its lowest level since the summer of 2021.

The market also welcomed the slowed wage growth rate. The market has been paying close attention to wage growth figures in this report because high wage increases in an overheated labor market inevitably contribute to inflationary pressures.

Drew Mathers, Chief Market Strategist at MetLife Investment Management, said, "From the market's perspective, what they reacted to was the slower-than-expected wage growth rate," adding, "They are watching to see if this is inflation or not. If wage growth weakens, the lower unemployment rate is not a big problem." Michael Aron, Chief Investment Strategist at State Street Global Advisors, also said, "What investors are concerned about is inflation," and added, "(The slowed) wage growth suggests inflation is easing, so they are excited."

The New York stock market, which showed mixed trends before the opening, is continuing its upward trend, relieved that wage growth slowed despite a strong labor market in the U.S. December employment report. As of 11:20 a.m. Eastern Time, the Dow Jones Industrial Average was up 1.68% from the previous close. The S&P 500, focused on large-cap stocks, rose 1.59%, and the Nasdaq, focused on tech stocks, gained 1.44%. U.S. Treasury yields also declined in the New York bond market.

U.S. President Joe Biden praised the employment report in a statement, calling it "good news for our economy and further evidence that my economic plan is working." He claimed, "We have seen the strongest two years of job growth in history," and said, "We are seeing a steady and stable growth transition that I have been talking about for months." He added, "There is still work to be done to lower inflation," but emphasized, "Although there may be frustrations along the way, it is clear that my economic plan to grow the economy from the bottom up is effective."

There are also opinions that this report will not immediately lead to significant changes in the Fed's monetary policy decisions, as the overall labor market overheating is still confirmed. Employment data released since the new year also support this labor market overheating. According to the ADP National Employment Report released the day before, private employment in U.S. companies increased by 235,000 in December last year, far exceeding the forecast of 153,000. The number of Americans filing for unemployment benefits also hit a 14-week low. Last week's new unemployment claims decreased by 19,000 from the previous week to 204,000, well below market expectations.

These indicators serve as grounds for the Fed to continue additional tightening. Michael Schumacher, Head of Strategy at Wells Fargo Securities, said, "It will not bring significant changes to the Fed's view," but evaluated, "Wage growth is positive for the Fed." Fed officials have also continued hawkish remarks recently, drawing a line against market expectations of a pivot. Speeches by Fed Board member Lisa Cook, Raphael Bostic, President of the Atlanta Federal Reserve Bank, Thomas Barkin, President of the Richmond Fed, and Esther George, President of the Kansas City Fed, are scheduled for the day.