The U.S. economy maintained a strong rate of job growth in December, with the unemployment rate falling to 3.5%. This can encourage the Fed to commit to increasing interest rates as a strategy against inflation.
The NFP reading rose 223,000 last month, the Labor Department reported in a closely watched jobs report on Friday. Data for November was revised lower to show 256,000 jobs added instead of 263,000 as previously reported.
Economists polled by Reuters had forecast the NFP reading to rise by 200,000 jobs, with estimates ranging from 130,000 to 350,000. Monthly employment growth far exceeds the rate needed to keep pace with growth in the working-age population.
The unemployment rate fell to 3.5% from 3.6% in November. The government revised the seasonally adjusted data for the household survey from the unemployment rate over the past five years.
Average hourly earnings rose 0.3% after 0.4% in the previous month. This shows a slightly slower year-on-year salary increase. Government data this week showed there were 10.458 million job openings at the end of November, which translates to 1.74 jobs for every unemployed person.
The labor market remains strong, even as the Fed raises interest rates rapidly. Interest rate-sensitive industries such as housing and finance, and technology companies, including Twitter, Amazon, and Meta have cut jobs. However, airlines, hotels, restaurants and bars on the other hand are in dire need of jobs.
Labor market resilience supports the economy by maintaining consumer spending. However, it raises the risk that the Fed could raise its target interest rate above the 5.1% level projected by the U.S. central bank. last month or keep it for a while.
The trend in employment growth, however, could slow significantly by mid-year due to high borrowing costs.
The US dollar index, which measures the US dollar against major currencies, slipped 0.10% to trade at 104.698 after the NFP report was released.
