Job growth and worker wages climbed strongly in December, suggesting the labor market remains very tight.
This could be a signal that the economy remains robust, despite a slump in housing. However, some expressed concerns that the increase in wages, which was made its largest jump since April, could mean inflationary pressures are rising.
In December, nonfarm payrolls rose by 167,000 jobs, the biggest advance in three months, the Labor Department said. Average hourly earnings rose by 8 cents, or 0.5%, to $17.04. Meanwhile, the unemployment rate held steady from November at a historically low 4.5%.
"Without a doubt, the wage picture will be regarded as threatening by Fed hawks," Pierre Ellis, a senior economist at Decision Econmics, told Reuters. "There's no sign of diminished call on labor market resources even as the economy grows at a relatively moderate rate. The Fed will be worried that productivity growth is in a nosedive."
However, if the wage gains are coupled with productivity gains, the increase in wages is not inflationary, said John Silvia, chief economist on CNBC's "Morning Call."
Investors are examining the report for signs of what Federal Reserve policy makers will do when they meet at the end of the month. The central bank has held its key interest rate steady at 5.25% since August, after raising rates for two years.
Some investors suspect the Fed could use the latest report as a reason to raise interest rates. An increase in rates could crimp consumer spending, and further weaken the housing market by making mortgages pricier.
At this point, though, many economists see policy makers keeping rates steady.
"Until we get an uptick in the unemployment rate, in this environment the Fed will probably stay in a holding pattern," said Commonfund chief economist Michael Strauss, pointing to the slowing, but still expanding, economy. "Moderate economic growth is historically good for the equity market, not a bad thing," he said.
All the new hiring since September has been in service industries while goods producers have cut jobs in each of the four months. In December, there were 178,000 more jobs added in service businesses while goods producers shed 11,000.
Construction industries dropped 3,000 jobs in December, a fourth straight month in which jobs were cut in a weakened housing sector. Some 12,000 manufacturing jobs were lost last month, a sixth straight month of factory job declines.