The economy is expected to add 200,000 jobs in December, fewer than in November, but remains strong enough for the Federal Reserve to continue to tighten policy aggressively to fight inflation. increase.
Economists surveyed by Dow Jones expect the unemployment rate to remain at 3.7% in December and average hourly earnings growth to slow to 0.4% from 0.6% in November. In November he added 263,000 jobs.
The jobs report is due to be released at 8:30 am ET on Friday and is the last major monthly jobs report before the Fed’s meetings on January 31st and February 1st.
The data is important as the Federal Reserve (Fed) has tried to slow the overheated labor market in its fight against inflation. The central bank has hiked rates seven times in this tightening cycle, and economists say he could raise rates by another 0.5% in February, but futures market traders say he’s just four minutes away. is betting on his 1 rate hike.
“I think we’ll have solid numbers on Friday. I don’t think things are slowing down that much,” said Michael Gappen, chief U.S. economist at Bank of America.
Gapen expects 215,000 jobs added last month. “That’s double the job growth they’re hoping for.” The December report could show some gains from seasonal employment.
The Federal Reserve’s latest economic forecasts show the unemployment rate rising to 4.6% by the fourth quarter. “Their forecast is for unemployment to rise. We know the break-even point is between 70,000 and 100,000,” Gapen said. “If we need to raise the unemployment rate, we need to keep employment below 70,000 to 100,000.”
Gapen expects the monthly numbers to start turning negative in the first half of this year and could remain negative for some time thereafter.
“Right now, the underlying economy is looking for evidence of whether the slowdown extends beyond residential and non-residential construction investment,” he said. is the commodity side of the economy.”
Gappen said the Fed is willing to undermine the job market. He sees construction as one of the areas he could lose jobs to as the real estate slowdown ripples through the economy.
“We have a lot of homes under construction…we look for mortgage service lenders and realtors…people who are framers and foundation layoffs. It’s a place to be seen,” he said.
Aneta Markowska, chief financial economist at Jefferies, expects 175,000 jobs to be added, but her biggest concern is continued pressure on wages. She agrees with the consensus that December wages were up 0.4% year-on-year, or 5% year-on-year, but she could jump to 0.7% on a monthly basis in January as companies implement raises. said to be sexual.
Economists fear that if wage inflation starts to spike, it will be a more difficult type of inflation to eradicate. The strength of the labor economy has surprised economists for months. November job openings, for example, were reported at about 10.5 million, higher than expected in a survey of job openings and turnover released Wednesday.
“I think what the JOLTs data tell us is that employment is actually slowing down, not because the demand for labor is falling sharply,” Markowska said. “Supply constraints are just beginning to come together. We are seeing turnover rising again. Growth jobs remain strong. Yes, and if so, we are asking for further wage increases.”
Diane Swonk, chief economist at KPMG, said one area where hiring is rising is new companies.
“A lot of what we’re seeing is not just employers, it’s being driven on the demand side by the formation of new businesses that suddenly have to compete,” she said. It’s a very different situation.”
The Fed has hiked rates seven times since March last year, and the Federal Funds rate is now 4.5% from 4.25%. Both Gapen and Markowska said the strength of the labor force would justify the central bank raising rates by another 0.5 percentage points on February 1 and by 1 percentage point in March. However, many investors expect only a quarter of a percentage point rate hike in February, followed by another quarter percentage point hike.
Moody’s Analytics chief economist Mark Zandy said the Fed is trying to encourage investors to expect higher rates over the longer term. That was evident in the December meeting minutes released Wednesday.
“I think they are trying to steer the market away from thinking that interest rates are going to fall sharply this year,” he said. “If you look at the market expectations, the Federal Funds rate will rise to 5% soon and drop sharply by the end of the year. The message in the minutes is that rates will rise longer. “It would be the end of the day if they were to maintain the high standards of , but that’s the message they wanted to send.”
Zandi expects the economy added 225,000 jobs in December.
“The job market is slowing steadily, but it’s not enough. The Federal Reserve expects the job market to drop below 100,000 and approach zero as the unemployment rate moves north and wages move south. “These numbers are going to move us in that direction very soon,” he said. there will be
Jobs data could move markets because of potential implications for the Federal Reserve.
“I would look first and foremost on wages,” said Michael Schumacher, head of macro strategy at Wells Fargo. Told. “If the wage side goes to 0.5 or 0.6, that’s pretty disruptive. 0.3 is not an event. We need 0.2 for the market to move significantly. Then the story of the Fed almost done begins.”