US job gains exceeded expectations in December while unemployment ticked down, a closely-watched government report said Friday -- in a sign the labor market remains hotter than hoped by policy-makers seeking to tamp down inflation.
While a strong labor market may fuel optimism that the world's biggest economy can stave off a major downturn despite an aggressive series of interest rate hikes, it is also an area of concern for the Federal Reserve since high wages can feed into inflation.
But in a more encouraging sign for the Fed -- also welcomed by market analysts -- the latest data did show a tempering of wage growth.
Last month, average hourly earnings rose less than anticipated by 0.3 percent to $32.82, while November's jump was revised lower, Labor Department data showed.
Overall, employers added 223,000 workers, down from the revised 256,000 figure in November as well though still higher than analysts expected.
While unemployment is typically expected to edge up as interest rates rise, the jobless rate dipped to 3.5 percent as participation moved higher.
President Joe Biden touted the continuing fall in unemployment -- which has been at a five-decade low since December -- while striking an optimistic note on the broader effort to combat inflation.
"This moderation in job growth is appropriate, and we should expect it to continue in the months ahead, even as we maintain resilience in our labor market recovery," Biden said in a statement.
"We still have work to do to bring down inflation... But we are moving in the right direction," he added.
Overall, average hourly earnings have risen 4.6 percent in the past 12 months, the Labor Department said, as many companies experiencing labor shortages after disruption from the pandemic have been keen to find and hold on to workers.
- Slowing wage growth -
"Notable job gains occurred in leisure and hospitality, health care, construction, and social assistance," the department said.
But it added that employment in the leisure and hospitality sector still "remains below its pre-pandemic February 2020 level."
Despite the robust figures, the data has also been signaling "positive momentum in job growth and moderating wages," economist Rubeela Farooqi of High Frequency Economics said in an analysis.
To combat inflation and cool demand, the Fed hiked interest rates seven times last year including a series of steep, back-to-back increases before slowing its pace in December.
"In terms of Fed policy, while job growth remains solid and the unemployment rate is low, a deceleration in wages in December and the downward revision to November will be welcome news," Farooqi said.
This could open doors to a slower pace of rate increases in the coming months, she added.
However, Nancy Vanden Houten of Oxford Economics cautioned that gains in jobs and annual earnings are still "above the pace the Fed sees as consistent with slowing inflation," meaning those looking for a cut in interest rates will likely be disappointed.
Interest-sensitive sectors like housing have slumped following the Fed's rate hikes, but other areas have proven more resilient.
While the Fed has eased its pace of rate increases, there remain questions over how much higher rates have to go to bring inflation under control.
Job growth in the past year has risen on the back of "catch-up hiring" in the Covid-19 recovery, said Ian Shepherdson, chief economist at Pantheon Macroeconomics.
But this effect is fading across most of the economy, he said.
"We think substantially slower payroll growth is coming very soon," he added.