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Goldilocks Jobs Report? December Jobs Gains At 223,000, Wage Growth Slows

Notably slower wage growth offset a stronger-than-expected December jobs report, sending U.S. stocks higher in early Friday trading.

Updated at 10:45 am EST

The U.S. economy added more new jobs than forecast last month, the Labor Department said Friday, but wage growth slowed notably from November, suggesting the gains may not feed as quickly into inflation pressures.  

The Bureau for Labor Statistics said 223,000 new jobs were created last month, well ahead of the Street consensus forecast of 200,000. Private payrolls were up 220,000, the BLS said, as the unemployment rate slipped to 3.5%, the lowest since 1969. 

The BLS also revised its November jobs addition estimate to 256,000 from its original estimate of 263,000.

The BLS noted that hourly wages were up 0.3%, around half of last month's gain, and came in light of  Street forecasts of a 0.4% gain. On a year-on-year basis, wages were up 4.6%, compared to the 5.1% pace recorded in December, the BLS said.

Minutes from the Federal Reserve's December policy meeting, when members agreed to their seventh interest rate hike of the year, indicated "tentative signs that labor market balances are improving", but noted "large imbalances between labor supply and labor demand, as indicated by the still-large number of job openings and elevated nominal wage growth”.

“The latest US jobs data is another reminder that the world’s largest economy remains largely intact despite what inflation did in 2022," said Richard Carter, head of fixed interest research at Quilter Cheviot. 

"Furthermore, following comments earlier this week that the Federal Reserve will remain in hawkish mode for the foreseeable future, this latest data print will only embolden Jerome Powell to keep on the path of higher interest rates. Clearly the US economy is showing that it can take the strain for now," he added. "With the jobs market continuing to be red hot and corporate earnings holding up in the face of tighter monetary policy, the fabled ‘soft landing’ may be achievable after all.:

U.S. stocks extended earlier gains following the data release, with the Dow Jones Industrial Average rising 505 points in the opening hours of trading and the S&P 500 gaining 54 points from last night's close. The tech-focused Nasdaq was up 121 higher.

Benchmark 10-year Treasury note yields eased 13 basis point to 3.599%  while 2-year notes fell to 4.285%. The CME Group's FedWatch suggests a 26.8% chance of a 50 basis point rate hike early next month in Washington, down from 42.3% prior to the jobs report release.

The U.S. dollar index, which tracks the greenback against a basket of six major global currencies, was marked 0.67% lower at 104.371.

Earlier this week, payroll processing group ADP said private hiring accelerated to 235,000 new positions last month, while new applications for unemployment benefits fell by 20,000 to 204,000 over the period ending on December 31.

The Challenger job cuts report for December, however, said layoffs rose 129% from last year to 76,835. JOLTs data for the month of November, however, indicated around 10.45 million open positions, a level that could feed in to pay gains over the coming months.