US payrolls show labor market remains strong but wages rises cool

NEW YORK (Reuters) - The U.S. economy maintained a strong pace of job growth in December, with the unemployment rate falling to 3.5%, but higher borrowing costs as the Federal Reserve fights inflation could see the labor market momentum slowing significantly by mid-year.

Nonfarm payrolls increased 223,000 last month, the Labor Department said in its closely watched employment report on Friday. Data for November was revised lower to show 256,000 jobs added instead of 263,000 as previously reported.

Economists polled by Reuters had forecast payrolls increasing by 200,000 jobs. Monthly job growth is well above the pace needed to keep up with growth in the working age population.

MARKET REACTION:

STOCKS: S&P e-mini futures turned sharply higher, pointing to a strong opening on Wall Street, and were last up 1.0%

BONDS: The yield on 10-year Treasury note fell and was last down 1.5 basis points from the close at 3.707%; The two-year U.S. Treasury yield was down 3.5 basis points from Thursday at 4.419%.

FOREX: The euro turned 0.1% firmer against the dollar, while the dollar index reversed slightly lower

COMMENTS:

RICHARD FLAX, CHIEF INVESTMENT OFFICER, MONEYFARM, LONDON

    "The slowing in average hourly earnings would be taken positively."

    "A lower unemployment rate in the sense that it would suggest that future wage growth to be decelerating, that would be taken be taken positively by policymakers."

    "Fed will look at these numbers and say that the labor market is still pretty robust and to the extent that they would like to see a bit of slack in the labor market."   

    "Maybe if you wanted to be very optimistic, you would say that a slowdown in the growth of average hourly earnings is a positive thing, but it's a single data point."

PAUL NOLTE, PORTFOLIO MANAGER, KINGSVIEW ASSET MANAGEMENT, CHICAGO

"Gains in new jobs are heading in the right direction as far as Wall Street is concerned."

"It's possible that we see maybe a little bit of bargain hunting, especially in some of the tech names that have gotten pretty beat in the last couple of weeks."

"When you look at any normal month, 220,000 new jobs is still a pretty hefty number. The Fed will still be on the path of hiking rates, but it will be at a lower pay or slower pace. It will not be at 75 basis points, it's likely to be 25 basis points, but they will still be raising rates. This is not an indication of an economy that is going into recession, at least through the lens of the jobs numbers."

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(Compliled by the global Finance & Markets Breaking News team)