Video above: Here’s what experts say to expect from the economy in 2023 America’s employers added a solid 223,000 jobs in December, suggesting the economy remains healthy even as the Federal Reserve rapidly raises interest rates to try to slow economic growth and employment rates. December’s job growth, while decent, was the slowest monthly increase in two years. On Friday, the Labor Department reported that the unemployment rate fell to 3.5%, a 53-year low. The monthly employment report offers other signs that the labor market has begun to cool. Last month’s gain was less than half of the 537,000 added in July. Growth in average hourly wages slowed sharply, rising 4.6% in December from 12 months earlier, compared to a 4.8% year-over-year increase in November and a recent peak of 5.6% in March. Slower wage growth will be a relief to Fed officials, who view wage growth as a factor in future inflation. Last month’s job gains capped a second straight year of strong hiring in which the country regained all 22 million jobs lost due to the COVID-19 pandemic. Yet the rapid hiring and the large wage increases that accompanied it likely contributed to the sharp rise in prices that catapulted inflation to its highest level in 40 years. The picture for 2023 is much murkier. Many economists are predicting a recession in the second half of the year, which will be the result of consecutive sharp increases in Fed rates. The central bank officials predicted that these increases would lead to the unemployment rate reaching 4.6% by the end of the year. While the Fed’s higher rates have begun to cool inflation from its summer peak, they have also made mortgages, auto loans and other consumer and business loans more expensive. At least for now, the labor market is showing remarkable resilience in the face of higher interest rates across the economy. Employers added 4.6 million jobs in 2022, on top of 6.7 million in 2021. This entire set was part of a powerful rebound after the pandemic recession of 2020. In June, annualized inflation reached 9.1%, the highest level in 40 years, before slowing to 7.1% in November. Last year, in an active effort to reduce inflation to the 2% target, the Fed raised the base rate seven times. Fed Chairman Jerome Powell emphasized in recent remarks that persistently high job growth can force employers to raise wages to find and keep workers, can perpetuate inflation: Companies often raise prices to pass on higher labor costs to their customers. And higher pay usually leads to higher consumer spending, which can support inflation. For this reason, Powell and other Fed officials have expressed their view that to bring inflation under control, unemployment must rise from the current low level. Fed officials have predicted that they will raise their benchmark short-term rate this year to around 5.1%, the highest level in more than 15 years. If hiring and inflation remain strong, the Fed may have to raise rates even higher. Tech companies have been laying off workers for months, with some, including Amazon, saying they hired too many people during the pandemic. Amazon has increased the number of layoffs to 18,000 from a previously announced 10,000. Cloud software provider Salesforce says it will cut 10% of its workforce. And Facebook’s parent company Meta says it will cut 11,000. Smaller tech companies are also affected. Stitch Fix, a purveyor of fast fashion, said Thursday it is cutting 20% ​​of its workforce. DoorDash said it would cut 1,250 jobs. However, outside of high tech, smaller companies in particular are still hiring. According to payroll processor ADP, companies with more than 500 employees cut jobs in December, while businesses below that threshold added significantly more workers. And an analysis by investment bank Jefferies found that small companies are posting a historically high proportion of job vacancies. Video below: What does the Fed’s rate hike mean for mortgages? The Fed is concerned about the rapid pace of wage growth, which it believes is the reason why inflation is likely to remain high. Average hourly wages are rising by about 5%, one of the highest levels in decades. Economists estimate that in the last three months of last year, growth was probably at a solid annual rate of around 2.5%. But there are signs that it is slowing, with most analysts expecting weaker growth in the current first quarter of 2023. Consumers barely increased their spending in November due to modest holiday shopping. And production activity decreased in December for the second month in a row, and new orders and production are decreasing. The housing market, an important economic driver, was hit hard by the Fed’s rate hikes, which more than doubled mortgage rates. last year. Home sales have fallen sharply over the past 10 months.
Video above: Here’s what experts expect from the economy in 2023
America’s employers added 223,000 new jobs in December, suggesting the economy remains healthy even as the Federal Reserve sharply raises interest rates to try to slow economic growth and the pace of hiring.
December’s job growth, while decent, was the slowest monthly increase in two years. On Friday, the Labor Department reported that the unemployment rate fell to 3.5%, a 53-year low.
The monthly employment report provided other signs that the labor market has begun to cool. Last month’s gain was less than half of the 537,000 added in July. Growth in average hourly wages slowed sharply, rising 4.6% in December from 12 months earlier, compared with a 4.8% year-over-year increase in November and a recent peak of 5.6% in March.
Slower wage growth will come as a relief to Fed officials, who view wage growth as a factor in future inflation.
Last month’s job gains capped a second straight year of strong hiring in which the country regained all 22 million jobs lost due to the COVID-19 pandemic. Yet the rapid hiring and the large wage increases that accompanied it likely contributed to the sharp rise in prices that catapulted inflation to its highest level in 40 years.
The picture for 2023 is much cloudier. Many economists are predicting a recession in the second half of the year, which will be the result of consecutive sharp increases in Fed rates. Central bank officials predicted that the increase would push the unemployment rate to 4.6% by the end of the year.
While the Fed’s higher rates have begun to cool inflation from its summer peak, they have also made mortgages, auto loans and other consumer and business loans more expensive.
At least for now, the labor market is showing remarkable resilience in the face of higher interest rates across the economy. Employers added 4.6 million jobs in 2022, on top of 6.7 million in 2021. All of this hiring has been part of a powerful rebound since the pandemic recession of 2020.
Annual inflation hit 9.1% in June, the highest level in 40 years, before slowing to 7.1% in November. Last year, in an active effort to reduce inflation to the 2% target, the Fed raised the base rate seven times.
Fed Chairman Jerome Powell emphasized in recent remarks that continued strong job growth, which can force employers to raise wages to find and retain workers, can perpetuate inflation: Companies often raise prices to pass on higher labor costs to their customers. And higher pay usually leads to higher consumer spending, which can support inflation.
For this reason, Powell and other Fed officials have expressed their belief that unemployment must rise from current lows to keep inflation under control.
Fed officials have forecast they will raise their benchmark short-term rate this year to around 5.1%, the highest level in more than 15 years. If hiring and inflation remain strong, the Fed may have to raise rates even higher.
Tech companies have been laying off workers for months, and some, including Amazon, say they’ve hired too many people during the pandemic. Amazon has increased the number of layoffs to 18,000 from a previously announced 10,000. Cloud software provider Salesforce says it will cut 10% of its workforce. And Facebook’s parent company Meta says it will lose 11,000 people.
Smaller technology companies have also been affected. Stitch Fix, a purveyor of fast fashion, said Thursday it is cutting 20% ​​of its workforce. DoorDash said it would cut 1,250 jobs.
However, outside of high tech, smaller companies in particular are still hiring. According to payroll processor ADP, companies with more than 500 employees cut jobs in December, while businesses below that threshold added significantly more workers. And an analysis by investment bank Jefferies found that small companies are posting a historically high proportion of job vacancies.
Video below: What does the Fed’s rate hike mean for mortgages?
The Fed is concerned about the rapid pace of wage growth, which it sees as a reason why inflation is likely to remain high. Average hourly wages are rising by about 5%, one of the highest levels in decades.
Economists estimate that in the final three months of last year, growth was likely at a solid annual pace of around 2.5%. But there are signs that it is slowing, with most analysts expecting weaker growth in the current first quarter of 2023.
Consumers barely increased their spending in November, restrained by modest holiday shopping. And production activity decreased in December for the second month in a row, and both new orders and production decreased.
And the housing market, an important economic driver, has been hit hard by the Fed’s rate hikes, which have more than doubled mortgage rates over the past year. Home sales have fallen sharply over the past 10 months.
US hiring remains buoyant as employers add 223,000 jobs
Source link US hiring remains buoyant as employers add 223,000 jobs