The December jobs report beat expectations once again, as key service sectors continued to show strong growth.
Health care and social services led the way with a gain of more than 74,000 jobs last month, the Bureau of Labor Statistics said in its report, released Friday. That was driven in large part by an increase of 30,000 payrolls in ambulatory health care.
Leisure and hospitality and construction followed, with gains of 67,000 and 28,000, respectively.
“Health care has recovered to its pre-pandemic levels, but nowhere near its pre-pandemic trend, and hospitality is still not back to its pre-pandemic levels,” said Julia Pollak, chief economist at ZipRecruiter. Pollak added that both sectors look poised for long-term growth due to changing consumer trends and an aging population.
Retail trade and the transportation and warehousing sector also posted slight gains after shedding jobs the previous two months.
The highlight of the report for investors was lower wage growth, which could be a sign that the Federal Reserve’s efforts to bring down inflation are working. The central bank is attempting to achieve a soft landing, in which wages and inflation cool without a major spike in unemployment, but has made clear that inflation is its top priority.
The moderating wage growth is also one of a few signs in the report that the labor market might be softening slightly ahead of what many economists expect could be an economic slowdown or contraction this year.
“This is a very fragmented labor market, even if it is solid in the overall gains, and we’re going to see that play out in 2023. Those interest-rate sensitive like manufacturing I think are at high risk. Leisure and hospitality has carried the weight, but that’s going to be dependent on a consumer who is still able to spend,” ADP chief economist Nela Richardson said Friday on “Squawk Box.“
The information sector shed 5,000 jobs, possibly reflecting layoffs at tech companies.
Professional and business services saw the largest decline of the above sectors, shedding 6,000 jobs. That was driven by even larger losses in the temporary help services category, which could be a precursor to layoffs elsewhere, said Pollak.
“This report has fantastic, very encouraging signals when it comes to showing what happened in the rearview mirror. But leading indicators are a bit more worrying,” Pollak said.
