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Total nonfarm payroll employment increased by 223,000 in December, following job growth greater than 250,000 in October and November, according to the latest jobs report from the Bureau of Labor Statistics (BLS). Notable job gains occurred in leisure and hospitality (+67,000), health care (+55,000), construction (+28,000), and social assistance (+20,000). According to Mark Palim, deputy chief economist at Fannie Mae, December marked the fifth consecutive month of deceleration for employment growth.

“To the extent the labor market is gradually cooling, it is starting from an already tight condition as confirmed by the unemployment rate ticking downward to 3.5%,” Palim says. “Therefore, we do not expect today’s report to meaningfully alter the current path of monetary policy.”

The unemployment rate edged down to 3.5% in December from 3.7% in November, and the number of unemployed persons decreased to 5.7 million in December from 6 million in November.

“[December’s] jobs report shows that despite a steady flow of new layoffs hitting the news most days, the economy overall is continuing to add jobs,” says Zonda chief economist Ali Wolf. “What the jobs report is great at doing is telling the current state of the market, rather than forecasting the future. We are continually tracking different employment data sets and trends to see if we keep on this slow and steady growth path or start to see a more widespread labor market cooling kick in.”

Mike Fratantoni, senior vice president and chief economist of the Mortgage Bankers Association, says the one sign of softness from the December report was a reduction in wage growth (4.6% on a year-over-year basis in December).

“The consistent slowing in the pace of wage growth may reflect employer caution as other data clearly signal a weaker economy,” Fratantoni says. “Slower wage growth should also be reflected in further reductions in the rate of inflation, as businesses will have less cause to push prices up to pay for higher wages. Ultimately, this should result in inflation dropping back to the Federal Reserve’s 2% target.”

The number of long-term unemployed—those jobless for 27 weeks or more—declined by 146,000 to 1.1 million in December. The December count is down from 2 million during the same period of 2021. The long-term unemployed accounted for 18.5% of all unemployed persons, according to the BLS.

The employment-population ratio increased by 0.2 percentage points on a month-over-month basis to 60.1% in December. The labor force participation rate was little changed at 62.3% in December. According to the BLS, both measures have shown little net change since early 2022.

The number of persons not in the labor force who currently want a job fell by 352,000 to 5.2 million in December. Among those not in the labor force who wanted a job, the number of persons marginally attached—individuals who want and are able to work and have looked for a job in the prior 12 months but had not looked for work in the four weeks preceding the Household Data survey—declined by 231,000 to 1.3 million in December. The number of discouraged workers, a subset of the marginally attached who believed no jobs were available for them, was essentially unchanged from the previous month at 410,000 in December.

“Financial markets and the Federal Reserve are keeping a close eye on the labor market and wage growth, for signs that a moderation would impact inflation,” senior economist George Ratiu says. “As consumer prices have seen slowing growth over the past few months, there are expectations that the Fed will resort to more moderate policy rate hikes in the next few months."