11 months ago • 2 mins
Data out on Friday showed the US added more jobs than expected in December, but investors are hoping that slowing wage growth will let the Federal Reserve (the Fed) ease up on hikes.
What does this mean?
The Fed wasn’t messing around last year: it jacked up interest rates seven times in a bid to bring inflation to heel, and those dogged efforts are showing some more signs of denting the wild and wilful jobs market. Just look at December’s figures: sure, the month ended with 223,000 extra folk gainfully employed, about 10% more than experts predicted– but that was the fifth straight month that job growth eased, and the weakest uptick in two years. And that’s no wonder: although industries like healthcare and construction went on a minor hiring spree, others barely budged – and some even shed jobs. The real cherry on top is probably the fact that salary growth is cooling, with December’s wages up a lower-than-expected 4.6% on the same time last year.
Why should I care?
For markets: Soft touch.
That slowdown in wage growth will be welcome news for the Fed, but there's still a ways to go: after all, the unemployment rate did just unexpectedly drop to 3.5%, matching a 50-year low and far from the 4.6% the central bank forecasts it hitting this year. Still, investors are hopeful that Friday's data might tempt the Fed to slow hikes, and markets are already predicting a gentler, 0.25 percentage point increase next month – which might be why US stocks spiked after the news.
Zooming out: Double whammy.
Europe’s not faring so well though: the prices of goods and services there rose by a lower-than-expected 9.2% last month, but core inflation – which excludes volatile food and energy prices – actually hit an unexpected high. That’s got traders counting on 0.5 percentage point hikes from the European Central Bank in February and March.
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