By Joyce Yu
Philadelphia, PA–U.S. job gains slowed faster than expected in December, wages, on the other hand, picked up slightly, reinforcing signs of a full-employment economy.
Employers added 148,000 workers, declining from the 190,000 median estimate of economists surveyed by Bloomberg, a Labor Department report showed Friday. Average hourly earnings increased by 2.5% from a year earlier, after a 2.4% gain in November. The jobless rate remained at 4.1%, the lowest level since 2000.
Job growth is slowing as the labor market nears full employment. After more than seven years of interrupted gains, U.S. labor market added 1.9 million jobs between January and November 2017. Economists say to keep downward pressure on the jobless rate, job gain has to be above 100,000 a month.
“It’s a little soft across the board but overall, when you’re this close to full employment, I think it’s reasonable to see some slowdown in job gains,” Jeremy Schwartz, a U.S. economist at Credit Suisse in New York, told Bloomberg. “This year we should probably expect to see some slowdowns in job gains – it’s just harder to add jobs when there’s a smaller pool to choose from.”
Data on Friday showed solid gains of 30,000 in construction and 25,000 in manufacturing. Retailers cut 20,300 positions during the holiday-shopping peak season, bringing total gains among service providers to 91,000, down from 176,000 in November.
Given other strong economic data recently and declining jobless rate, wage growth is expected to expand faster which will likely translate into a much stronger increase in inflation than currently anticipated. That, according to economists, would force the Fed to push through four interest rate increases this year instead of the three it has penciled in, according to a Reuters report. The U.S. central bank raised borrowing costs three times in 2017.
“If the unemployment rate declines and wages rise faster, which is likely, the Fed is going to start worrying about wage inflation,” said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania.
The new tax bill could also act as a double-edged sword for the economy, giving a temporary boost to the labor market but possibly overheating the economy at the same time. “With the tax cuts we get solid GDP growth in the near-term and then a fiscal hangover, which will likely put the economy at a greater risk of recession,” said Ryan Sweet, senior economist at Moody’s Analytics in West Chester, Pennsylvania.
