The release of the December jobs report by the U.S. Bureau of Labor Statistics last Friday was anticipated to reveal additional indications of a cooling labor market as 2023 concludes.
According to consensus estimates compiled by Bloomberg, nonfarm payrolls were expected to increase by 175,000 in December, coupled with a slight rise in the unemployment rate at 3.8 percent from 3.7 percent in the previous month.
In November, the economy saw an addition of 199,000 new jobs. During the same period, job openings continued a downward trend that has persisted for over a year, though they remain significantly higher than pre-pandemic levels.
Aside from nonfarm payrolls and the unemployment rate, key data points to be watched by Wall Street also include average hourly earnings, both month-on-month and year-on-year, and average weekly hours worked.
Notably, the average monthly earnings is expected to decrease to 0.3 percent from last month's 0.4 percent. Yearly earnings are also expected to be at 3.9 percent, marking the first time wage growth has fallen below four percent since May 2021 if the projection holds true. Meanwhile, weekly hours worked remained steady at 34.4 hours.
This report serves as a crucial test for the market's ability to rebound from a sluggish start to the new year, contrasting with a strong surge at the end of 2023. The surge in stock prices last month was partly influenced by investor trust in the Federal Reserve's ability to orchestrate a controlled economic slowdown, ensuring inflation returns to the Fed's 2.0 percent target without causing a recession.
"We expect the December employment report to show slower job growth and a further moderation in nominal wage growth, both something the Federal Reserve wants to see as it attempts to engineer a soft-landing," wrote Nancy Vanden Houten, lead U.S. economist at Oxford Economics last Thursday.
Recent labor market trends
The most recent Job Openings and Labor Turnover Survey shows positive developments in achieving a better equilibrium between worker supply and demand in the labor market.
According to the data, job openings in November marked their lowest point since March 2021. By the end of November, there were 8.79 million job openings, reflecting a marginal decline from the 8.85 million reported in October.
Another labor market insight from ADP also showed that private payrolls experienced a more substantial increase than anticipated in December. Meanwhile, the growth in wages continued to slow down, which ADP sees as a positive sign in the ongoing fight against inflation.
"We're returning to a labor market that's very much aligned with pre-pandemic hiring. While wages didn't drive the recent bout of inflation, now that pay growth has retreated, any risk of a wage-price spiral has all but disappeared," said ADP chief economist Nela Richardson on Thursday.
Despite these positive trends, EY chief economist Greg Daco expressed reservations about current wage growth, noting it is "still a bit too high for comfort." According to him, achieving a soft landing hinges on how effectively the labor market cools.
"Growth, I think it's undeniable that the labor market growth that we've seen over the past year is indeed slowing," he said.
"But I think that as we navigate through the rest of the year that essentially the key question is whether we continue to see resilient labor demand, or whether we see more of a pullback after the normalization."
Looking ahead, Daco envisions the figure gradually coming down to a more sustainable level closer to 3.0 percent in the long run.