The US economy added 216,000 jobs, shocking Wall Street

The US economy ended 2023 on a high.

The labor market added 216,000 jobs in December, compared with 173,000 in the previous month. Wall Street will once again wonder if it will end in 2023. Economists polled by Bloomberg had expected 175,000.

Data released by the Bureau of Labor Statistics Friday The unemployment rate was 3.7% for the month, flat from the rate seen in November. Economists had expected the unemployment rate to rise to 3.8%.

Investors were watching the report closely for signs of whether the Federal Reserve could make a so-called soft landing, where inflation retreats toward the central bank's 2% target without recession. That could affect the Fed's timeline for cutting rates this year.

The key to the soft-landing goal is to normalize the red-hot, pandemic-era labor market. Nela Richardson, ADP's chief economist, told Yahoo Finance Live that the central bank will be watching for an increase in jobs in December. “What we're seeing with companies is forced hiring, especially small businesses,” Richardson said.

Investor bets on a rate cut in March dialed back after the jobs report. Investors are now pricing in a 56% chance of a rate cut after the March meeting, up from 88% a month ago. According to the CME FedWatch tool.

Surprising strength in the labor market also helped consumer wallets.

Wages, a closely watched indicator of inflation and a measure of how much leverage workers have in the labor market, rose 0.4% on a monthly basis and 4.1% from last year; Economists had expected wages to rise 0.3% from last month and 3.9% from last year.

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However, some key metrics are down. The labor force participation rate fell to 62.5%, from 62.8% in the previous month, while average weekly working hours fell to 34.3 from 34.4.

“There is a lot of noise in the data, but we continue to expect that there will be enough evidence of further easing of labor market conditions and a more broad-based decline in inflation that the Fed will start cutting rates in May,” Nancy said. Vanden Houten, a leading US economist at Oxford Economics, said in a note.

The biggest job gains in Friday's report were seen in government, where 52,000 jobs were added. Meanwhile, healthcare added 38,000 jobs.

At the other end, the biggest losses were seen in transportation and warehousing, which lost 23,000 jobs, while social assistance, which lost 21,000.

NEW YORK, NEW YORK - OCTOBER 13: A group of construction workers hold a meeting about underground pipe repairs on October 13, 2023 in New York City.  (Photo by Robert Nickelsberg/Getty Images)

A group of construction workers hold a meeting about underground pipe repairs on October 13, 2023 in New York City. (Robert Nickelsberg/Getty Images) (Robert Nickelsberg via Getty Images)

Data released earlier this week showed signs that the labor market is coming to a better balance between labor supply and demand. On Wednesday, the latest job openings and labor turnover survey showed job openings in November hit their lowest level since March 2021.

Additional labor market data released Thursday from ADP showed private payrolls rose more than expected last month, while wage growth continued to slow. In particular, ADP noted that the decline in wage gains was a welcome sign in the fight against inflation, with Richardson saying in a press release that “any danger of a wage-price cycle has disappeared.”

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Josh Shaffer is a reporter for Yahoo Finance.

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