The economy is expected to add 200,000 jobs in December, slower than November, but still strong enough for the Federal Reserve to tighten policy to combat inflation.
Economists surveyed by Dow Jones also expect the unemployment rate to remain at 3.7% in December, while average hourly wage growth slowed to 0.4% from 0.6 % in November already 263,000 jobs added in November.
The jobs report is due out Friday at 8:30 a.m. ET, and here’s the final key monthly jobs data ahead of the Fed meeting on January 31 and May 1. 2.
This data is important because the Fed has been trying to slow down the hot labor market in its fight against inflation. The central bank has raised interest rates seven times in this tightening cycle and economists say it could increase by half a percentage point in February, but futures traders are betting on it. an increase of only a quarter of a point.
“I still think we’ll hit a solid number on Friday. I don’t think things have slowed that much,” said Michael Gapen, chief US economist at Bank of America.
Gapen expected to add 215,000 jobs last month. “That’s twice as much job growth as they’d like.” December’s report could still show some gains from seasonal hiring.
The The Fed’s latest economic forecast shows the unemployment rate rising to 4.6% in the fourth quarter. “Their forecast is for unemployment to rise. We know the break-even rate is between 70,000 and 100,000,” Gapen said. “If you want unemployment to go up, you need jobs to fall below 70,000 to 100,000.”
Gapen predicts the monthly numbers could start off negative in the first half of the year, and then stay negative for a while.
“Right now, the underlying economy is where we’re looking for evidence of whether the slowdown extends beyond residential and non-residential construction investment,” he said. “Next place could be the commodity side of the economy.”
Gapen said the Fed is willing to let the job market weaken because officials see worse damage to the economy if they let inflation stay high. He’s looking at construction as an area where jobs could drop out, as the real estate downturn spreads across the economy.
“We have a large number of homes under construction. … We will be looking for mortgage lenders and brokers… people who are building and laying out facilities. That’s probably where you’ll see the first layoffs in the construction industry,” he said.
Aneta Markowska, head of financial economics at Jefferies, expects 175,000 more jobs, but she is most concerned about wage pressures continuing to mount. She agrees with the consensus that wages rose 0.4% in December, or 5% year-over-year, but says that figure could rise to 0.7% monthly in January, when companies make wage increases.
Economists worry that wage inflation, if it starts to spiral, is a more difficult type of inflation to eliminate. The strength of the labor economy has surprised economists for months. For example, job openings in November were reported to be close to 10.5 million, more than expected, when Survey of job opportunities and turnover layoffs was released on Wednesday.
“I think what the JOLT data tells us is that there is actually a slowdown in hiring,” says Markowska. Not because the demand for labor is falling rapidly.” “It’s just that the supply constraints are starting to take their toll. You’re seeing a bounce back in hiring. Hiring growth remains steady. … We’re likely to have more constraining constraints. in the labor market, and if that’s the case, we’re in for more wage growth.”
Diane Swonk, chief economist at KPMG, said one area showing an increase in hiring is new companies.
“Much of what we are seeing is being driven from the demand side, not only by employers, but also by new business formation, which are suddenly competing with each other,” she said. “It’s a very different situation from what we’ve seen in the past.”
The Fed has raised rates seven times since last March, and the fed funds rate is currently at 4.25% to 4.5%. Both Gapen and Markowska said the strength of the workforce ensures that the central bank will raise interest rates by 0.5 percentage points on February 1, and then by a quarter point in March. However, many investors expect only a quarter point increase in February and then another quarter point after that.
Mark Zandi, chief economist at Moody’s Analytics, said the Fed is trying to encourage investors to expect higher interest rates over the longer term. That was evident in the December meeting minutesreleased on Wednesday.
“I think they are trying to steer the market away from thinking that rates are going to drop quickly this year,” he said. “If you look at market expectations, the federal funds rate will go up to 5% in the short term and then quickly drop back down at the end of the year. The message in minutes is that interest rates are going to be higher in time. longer. Who knows at the end of the day if they’re going to keep rates that high for that long, but that’s the message they want to send.”
Zandi expects the economy to add 225,000 jobs in December.
“The job market is slowing down steadily, but it’s definitely not. It’s not enough. I think the Fed would love to see jobs increase at 100,000, close to zero, for the unemployment rate to move forward. north and wages move south. These numbers show us’. He’s going to move in that direction very quickly,” he said. “I think we’ll be at 100,000 in the spring and there will be months at zero in the spring or summer.”
Because of its potential impact on the Fed, the jobs report could turn the market around.
“I would look at wages first. If employment hits 250,000 or 300,000, I don’t think the market will react too much,” said Michael Schumacher, head of macro strategy at Wells Fargo. “If the wage aspect of it is at 0.5 or 0.6, that’s pretty disruptive. 0.3 is nothing happens. The market needs 0.2 to move a lot, and then the sentence. The story goes that the Fed is almost done.”
