Labor Market Continues to Tighten – Wage Growth Raises Inflation Expectations

Employment increased by 156,000 in December after increasing by an upwardly revised 204,000 jobs in November.

Since the election, financial markets and surveys of business and consumer confidence have showed growing optimism about short-term growth prospects of the U.S. economy. But it’s too early to see this optimism in December’s job growth number, which reflects a continuation of a moderate employment growth trend.

As expected, the unemployment rate increased slightly in December following a large drop in November. But in a solid job growth environment, the unemployment rate is clearly trending down.

Over the past 12 months, average hourly earnings grew by 2.9 percent, a new record for this expansion. With the labor market tightening faster than pre-election expectations, wages and prices may accelerate, leading the Fed to raise interest rates faster than the market currently expects.

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