The US labor market remains strong despite inflationary pressures with two key employment reports released this week indicating that the Fed may need to stick with its path of aggressive interest rate hikes to tame inflation.
The American economy added more jobs than expected in December according to the latest total nonfarm payroll employment report released on Friday, which comes after ADP private payrolls data also topped expectations yesterday.
Total nonfarm payroll employment increased by 223,000 in December, down from 263,000 in November but ahead of the consensus analyst expectation of 200,000.
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Notable gains occurred in leisure and hospitality, health care, construction, and social assistance, the US Bureau of Labor Statistics said.
The unemployment rate came in at 3.5%, below the expected 3.7%.
ADSS global head of strategy and trading services Srijan Katyal commented: “This is another sizeable increase that shows that the US jobs market is giving no meaningful signs of slowing down, with nine consecutive reports beating estimates.”
Katyal added that another increase of this size is positive for workers as it supports salary growth, but noted that it will further buoy the high inflation that the Fed has been fighting with record interest rate hikes.
“With the Fed highlighting a focus on retaining flexibility for future rate changes, they will be looking at this data closely," Katyal said.
"This job growth will likely be too high for the Fed, which could lead to further rate increases of a substantial size.”
Titan Asset Management chief investment officer John Leiper said that the data, coming in above expectations with a notable drop in the unemployment rate pointing to ongoing labor market tightness, would do little to deter the Fed from its current hawkish stance.
“Good news is bad news as it increases the propensity of the central bank to continue hiking rates and to keep them there for longer,” he said. “We remain defensively positioned across risk assets.”
The market reacted positively to the news, with futures for Dow Jones Industrial Average, S&P 500 and Nasdaq Composite all up 0.9% in pre-market trading.
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