US non-farm payrolls rise by 223,000 in December

Hiring in the US was stronger than expected, rising by 223,000 and unemployment surprised to the downside too.

Yet so did hourly wage growth.

According to the US Department of Labor, in seasonally adjusted terms, non-farm payrolls increased by 203,000 in December.

Economists had forecast a gain of 200,000.

Estimates of non-farm payroll growth for the previous two months were revised lower by a combined -28,000.

The rate of unemployment meanwhile fell by one tenth of a percentage point to 3.5%.

That was on top of a downwards one tenth of a percentage point revision to the previous month's estimate of 3.7%.

Average hourly earnings rose by 0.27% month-on-month (consensus: 0.4%), alongside a two tenths of a percentage point downwards revision to November's data, and by 4.59% year-on-year with the latter back at its lowest level since mid-2021.

By sectors, payroll growth mimicked the distribution in other reports over the prior week to a certain extent with the bulk of hiring occcurring in the private sector with Travel and Leisure adding 74,400 workers, although it was Education and Health services that pace gains with an increase of 78,000.

Goods producing industries also generated strong jobs growth to the tune of 40,000, led by 28,000 in construction.

Hiring in professional and business services on the other hand remained weak at -6,000.

Andrew Hunter, senior US economist at Capital Economics, pointed out how a 35,000 fall in temporary help payrolls had depressed hiring in professional and business services "which have often tended to be a good leading indicator of overall employment growth".

He also noted that average weekly hours had ticked lower from 34.4 hours to 34.3.

"Overall, the data are a mixed bag for the Fed and will probably keep it hiking at the next couple of meetings," Hunter added.

"But we continue to expect weaker labour market conditions to push wage growth even lower soon, helping to reinforce the downward trend in core inflation already underway."

"Low wage inflation is not the key driver of our forecasts for much lower inflation in the first half of this year – that will mostly be due to margin compression – but it is essential if inflation is to stay low once margin compression is over, thereby allowing the Fed to start cutting rates later this year," chipped in Ian Shepherdson, chief economist at Pantheon Macroeconomics.

"That remains our base case; fears of a wage-price spiral now make little sense. If that was going to happen, it would have happened by now."

"[...] The third straight hefty drop in temp hiring, down 35K, is an ominous sign, as it often leads other hiring. Job growth over the past year has run faster than implied by the temp hiring data - which capture the cyclical component of payroll growth - because of continued post-Covid catch-up hiring.

"But this effect is now fading across most of the economy, so the cyclical story will increasingly become the key driver of total job gains. We think substantially slower payroll growth is coming very soon."

-- More to follow --