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Retail Facing ‘Exceptionally Tight’ Jobs Market

Retail still has a job-growth problem.

December’s 223,000 new U.S. jobs outpaced estimates and drove the unemployment rate down to 3.5 percent, though the retail trade sector was essentially unchanged.

“Employment in retail trade changed little in December,” according to data from the U.S. Bureau of Labor Statistics (BLS) on Friday, noting a 9,000-job gain. The last time the sector improved was when August recorded 44,000 new. BLS said job growth in retail trade averaged 16,000 per month last year, less than half the average growth of 35,000 per month in 2021.

“We estimate retail was supported by hiring pushed from November into December but overall not very strong holiday hiring… which could be supportive for January if there are fewer than expected holiday layoffs,” UBS economist Jonathan Pingle said on Friday. “Overall, job gains continue to slow, hours are normalizing and it appears nominal wage growth may be normalizing too.”

The BLS report noted that average hourly earnings (AHE) in December for employees on private nonfarm payrolls rose by 9 cents, or 0.3 percent, to $32.82. In contrast, AHE over the past 12 months have risen by 4.6 percent. AHE of private-sector production and nonsupervisory employees rose by 6 cents, or 0.2 percent, to $28.07.

On the manufacturing side, factories added just 8,000 jobs in December. The 24,000 job gains in durable goods were partially offset by the loss of 16,000 positions in nondurable goods, which includes apparel and footwear.

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Economists expected nonfarm payrolls to rise by 200,000, which puts the 223,000 addition in a positive context. November’s job growth was revised down by 7,000 to a gain of 256,000 from initial estimates. The growth in December’s payrolls were led by the leisure and hospitality fields, similar to ADP data published Thursday showing 235,000 jobs added in the U.S..

“The December employment report was generally encouraging. Nonfarm payroll growth slowed modestly but remained solid with a 223K monthly gain,” Wells Fargo economists Sarah House and Michael Pugliese said in a research note on Friday. “More importantly for Fed officials worried about the inflation outlook, wage growth cooled in December, and the labor force participation rate ticked higher for both prime age (25-54) and older (55+) workers.

The Wells Fargo economists expect wage growth in the “exceptionally tight” labor market will soften in the months ahead, and said the Federal Reserve Open Market Committee could tap the brakes on interest rate increases at its Jan. 31-Feb. 1 meeting with modest hikes of 25 or 50 basis points.

“We continue to expect the fed funds target range to reach 5.00-5.25 percent this spring and remain there through the remainder of the year,” they said.