The US Job Market Sizzled Hotter Than Expected in December

The U.S labor market ended the year on a hot note with employers adding significantly more jobs than expected in December.

The Labor Department on Friday reported that U.S. employers added 216,000 jobs for the month, compared to 199,000 in November. Economists expected 170,000 new jobs, according to consensus estimates from Dow Jones.

The unemployment rate was unchanged from 3.7% in November. Economists predicted the rate would land at 3.8%.

The report marks the 36th consecutive month of job gains for the U.S. economy, despite the economic challenges from high inflation, rising interest rates and the Fed's efforts to cool the economy. Still, it came in far less than the average monthly gain of 225,000 over the prior 12 months.

Government jobs led the gains in December, up by 52,000 positions. Health care added 38,000 jobs, and social assistance added 21,000 jobs, mostly in individual and family services.

Construction employment continued to trend higher with a gain of 17,000 jobs. Employment in transportation and warehousing dropped by 23,000 jobs.

The tight labor market continued to drive wages higher. Average hourly earnings rose by 15 cents, or 0.4% in December to $34.27. Over the past 12 months, average hourly earnings have increased by 4.1%.

The strong report clashed with expectations that the labor market would slow to ease inflation and interest rates.

Minutes from the Federal Reserve's Dec. 12-13 meeting indicate that the central bank's Federal Open Market Committee is putting more focus on the labor market, said Jeffrey Roach, chief economist for LPL Financial in Charlotte, N.C.

"Members see downside risk to the job market throughout 2024," he said before the release of the latest jobs numbers. "Markets could be choppy if the Fed is right and the job market ends up being weaker than expected."

The rate setting FOMC is widely expected to hold its key rate steady when it meets Jan. 30-31 at 5.25% to 5.5%. But Wall Street is betting on about a 65% chance that it will cut it rate when it meets in March.

"Fed officials will likely be concerned about rising wages but the recent uptick in average hourly earnings is not enough for the Fed to alter its policy plans in the upcoming months," Roach said. 

On Thursday, a report from payroll processing firm ADP, also showed continued strength in the labor market. It showed that private employers added 164,000 new jobs in December, more than the 130,000 jobs economists expected, according to consensus estimates by Dow Jones.

But another report, released on Wednesday, showed U.S. job openings fell in November to the lowest level since early 2021. The Bureau of Labor Statistics' Job Openings and Labor Turnover Survey tallied 8.8 million job openings on the last business day of the year, down from a recent high of 12 million in March 2022.