WASHINGTON, Jan 5 (Reuters) - U.S. employers hired more workers than expected in December while raising wages at a solid clip, prompting financial markets to dial back expectations that the Federal Reserve would start cutting interest rates in March.
There were, however, potential red flags in the closely watched employment report from the Labor Department on Friday. While the unemployment rate held at 3.7% last month, that was because 676,000 people left the labor force. Some economists attributed this to difficulties adjusting the data for seasonal fluctuations.
The economy also added 71,000 fewer jobs in October and November than previously reported. Nonetheless, the report indicated that the economy avoided a recession last year and would likely continue to grow through 2024 as labor market resilience supports consumer spending.
"This report lowers the probability of the Fed cutting in March and confirms our view that the Fed will not begin cutting as soon as the markets expect," said Jeffrey Roach, chief economist at LPL Financial in Charlotte, North Carolina.
Nonfarm payrolls increased by 216,000 jobs last month, the Labor Department's Bureau of Labor Statistics said. Economists polled by Reuters had forecast payrolls rising by 170,000 jobs. The economy added 2.7 million jobs in 2023, a sharp step-down from the 4.8 million positions created in 2022.
That reflected cooling demand in the economy following 525 basis points worth of rate hikes from the U.S. central bank since March 2022. Roughly 100,000 jobs per month are needed to keep up with growth in the working age population.
