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Business

Corporate Layoffs Spread Beyond High-Growth Tech Giants

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The headline-grabbing expansion of layoffs beyond high-growth technology companies stands in contrast to historically low levels of jobless claims and news that companies such as

Chipotle Mexican Grill Inc.

and

Airbus SE

are adding jobs.

This week, four companies trimmed more than 10,000 jobs, just a fraction of their total workforces. Still, the decisions mark a shift in sentiment inside executive suites, where many leaders have been holding on to workers after struggling to hire and retain them in recent years when the pandemic disrupted workplaces.

Live Q&A

Tech Layoffs: What Do They Mean?

The creator of the popular layoff tracker Layoffs.fyi Roger Lee and the head of talent at venture firm M13 Matt Hoffman sit down with WSJ reporter Chip Cutter, to discuss what’s behind the recent downsizing and whether it will be enough to recalibrate ahead of a possible recession.

Unlike

Microsoft Corp.

and Google parent

Alphabet Inc.,

which announced larger layoffs this month, these companies haven’t expanded their workforces dramatically during the pandemic. Instead, the leaders of these global giants said they were shrinking to adjust to slowing growth, or responding to weaker demand for their products.

“We are taking these actions to further optimize our cost structure,”

Jim Fitterling,

Dow’s chief executive, said in announcing the cuts, noting the company was navigating “macro uncertainties and challenging energy markets, particularly in Europe.”

The U.S. labor market broadly remains strong but has gradually lost steam in recent months. Employers added 223,000 jobs in December, the smallest gain in two years. The Labor Department will release January employment data next week.

Economists from Capital Economics estimate a further slowdown to an increase of 150,000 jobs in January, which would push job growth below its 2019 monthly average, the year before pandemic began.

There is “mounting evidence of weakness below the surface,”

Andrew Hunter,

senior U.S. economist at Capital Economics wrote in a note to clients Thursday.

Last month, the unemployment rate was 3.5%, matching multidecade lows. Wage growth remained strong, but had cooled from earlier in 2022. The Federal Reserve, which has been raising interest rates to combat high inflation, is looking for signs of slower wage growth and easing demand for workers.

Many CEOs say companies are beginning to scrutinize hiring more closely.

Slower hiring has already lengthened the time it takes Americans to land a new job. In December, 826,000 unemployed workers had been out of a job for about 3½ to 6 months, up from 526,000 in April 2022, according to the Labor Department.

“Employers are hovering with their feet above the brake. They’re more cautious. They’re more precise in their hiring,” said

Jonas Prising,

chief executive of

ManpowerGroup Inc.,

a provider of temporary workers. “But they’ve not stopped hiring.”

Additional signs of a cooling economy emerged on Thursday when the Commerce Department said U.S. gross domestic product growth slowed to a 2.9% annual rate in the fourth quarter, down from a 3.2% annual rate in the third quarter.

Not all companies are in layoff mode.

Walmart Inc.,

the country’s biggest private employer, said this week it was raising its starting wages for hourly U.S. workers to $14 from $12, amid a still tight job market for front line workers. Chipotle Mexican Grill Inc. said Thursday it plans to hire 15,000 new employees to work in its restaurants, while plane maker Airbus SE said it is recruiting over 13,000 new staffers this year. Airbus said 9,000 of the new jobs would be based in Europe with the rest spread among the U.S., China and elsewhere. 

General Electric Co.

, which slashed thousands of aerospace workers in 2020 and is currently laying off 2,000 workers from its wind turbine business, is hiring in other areas. “If you know any welders or machinists, send them my way,” Chief Executive

Larry Culp

said this week.

Annette Clayton,

CEO of North American operations at

Schneider Electric SE,

a Europe-headquartered energy-management and automation company, said the U.S. needs far more electricians to install electric-vehicle chargers and perform other tasks. “The shortage of electricians is very, very important for us,” she said.

Railroad CSX Corp. told investors on Wednesday that after sustained effort, it had reached its goal of about 7,000 train and engine employees around the beginning of the year, but plans to hire several hundred more people in those roles to serve as a cushion and to accommodate attrition that remains higher than the company would like.

Freeport-McMoRan Inc.

executives said Wednesday they expect U.S. labor shortages to continue to crimp production at the mining giant. The company has about 1,300 job openings in a U.S. workforce of about 10,000 to 12,000, and many of its domestic workers are new and need training and experience to match prior expertise, President

Kathleen Quirk

told analysts.

“We could have in 2022 produced more if we were fully staffed, and I believe that is the case again this year,” Ms. Quirk said.

The latest layoffs are modest relative to the size of these companies. For example, IBM’s plan to eliminate about 3,900 roles would amount to a 1.4% reduction in its head count of 280,000, according to its latest annual report.

As interest rates rise and companies tighten their belts, white-collar workers have taken the brunt of layoffs and job cuts, breaking with the usual pattern leading into a downturn. WSJ explains why many professionals are getting the pink slip first. Illustration: Adele Morgan

The planned 3,000 job cuts at SAP affect about 2.5% of the business-software maker’s global workforce. Finance chief

Luka Mucic

said the job cuts would be spread across the company’s geographic footprint, with most of them happening outside its home base in Germany. “The purpose is to further focus on strategic growth areas,” Mr. Mucic said. The company employed around 111,015 people on average last year.

Chemicals giant Dow said on Thursday it was trimming about 2,000 employees. The Midland, Mich., company said it currently employs about 37,800 people. Executives said they were targeting $1 billion in cost cuts this year and shutting down some assets to align spending with the macroeconomic environment.

Manufacturer

3M Co.

, which had about 95,000 employees at the end of 2021, cited weakening consumer demand when it announced this week plans to eliminate 2,500 manufacturing jobs. The maker of Scotch tape, Post-it Notes and thousands of other industrial and consumer products said it expects lower sales and profit in 2023.

“We’re looking at everything that we do as we manage through the challenges that we’re facing in the end markets,” 3M Chief Executive

Mike Roman

said during an earnings conference call. “We expect the demand trends we saw in December to extend through the first half of 2023.”

Hasbro Inc.

on Thursday said it would eliminate 15% of its workforce, or about 1,000 jobs, after the toy maker’s consumer-products business underperformed in the fourth quarter.

Some companies still hiring now say the job cuts across the economy are making it easier to find qualified candidates. “We’ve got the pick of the litter,” said

Bill McDermott,

CEO of business-software provider

ServiceNow Inc.

“We have so many applicants.”

At

Honeywell International Inc.,

CEO

Darius Adamczyk

said the job market remains competitive. With the layoffs in technology, though, Mr. Adamczyk said he anticipated that the labor market would likely soften, potentially also expanding the applicants Honeywell could attract.

“We’re probably going to be even more selective than we were before because we’re going to have a broader pool to draw from,” he said.

Across the corporate sphere, many of the layoffs happening now are still small relative to the size of the organizations, said

Denis Machuel,

CEO of global staffing firm Adecco Group AG.

“I would qualify it more as a recalibration of the workforce than deep cuts,” Mr. Machuel said. “They are adjusting, but they are not cutting the muscle.”

Write to Chip Cutter at chip.cutter@wsj.com and Theo Francis at theo.francis@wsj.com

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Business

U.S. GDP Rose 2.9% in the Fourth Quarter After a Year of High Inflation

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The U.S. economy grew at a solid 2.9% annual rate last quarter but entered this year with less momentum as rising interest rates and still-high inflation weighed on demand.

U.S. growth in the fourth quarter was down slightly from a 3.2% annual rate in the third quarter, the Commerce Department said Thursday. Consumer spending helped drive the fourth-quarter gain, while the housing market weakened and businesses cut back their spending on equipment.

The October-to-December period capped a year of economic slowdown with growth of 1% in the fourth quarter of 2022 compared with a year earlier, down sharply from 5.7% growth in 2021. The slowdown in part reflected a return to a more normal pace of growth after output surged amid business reopenings, fiscal stimulus and a waning pandemic in 2021.

Markets were mixed following Thursday’s release. Investors have been closely scrutinizing economic data for signs that U.S. growth is coming under pressure from the Federal Reserve’s campaign of interest-rate increases aimed at cooling the economy and bringing down high inflation.

So far in 2023, many traders and portfolio managers appear satisfied that economic activity remains strong enough that a recession this year is far from certain. That conclusion, together with cooling inflation readings, has helped fuel a modest rebound in U.S. stock indexes following last year’s washout.

The Fed is on track to slow interest-rate increases when it meets next week and debate how much higher to raise them this year as it tracks inflation’s trajectory and other economic developments.

The labor market has cooled some but continues to run strong. Jobless claims—a proxy for layoffs—fell last week and held near historic lows, despite the spread of layoff announcements beyond tech companies.

Workers received large wage gains through the end of last year. That helped consumer spending, the economy’s main engine, grow at a solid annual pace of 2.1% last quarter.

Despite some signs of resilience, recent data suggest consumers and businesses are starting to falter. Retail sales fell last month at the sharpest pace of 2022. Surveys of U.S. purchasing managers found that higher interest rates and persistent inflation weighed on demand in January in the manufacturing and service sectors. Companies cut temporary workers in December for the fifth consecutive month, a sign that broader job losses could be on the horizon.

Many economists are concerned about the possibility of a U.S. recession this year. They worry that the Fed’s efforts to curb inflation could trigger broad spending cutbacks and job losses.

“Headwinds from the big jump in interest rates, consumers cutting back on discretionary spending and weak economies overseas were big problems for the U.S. in late 2022,” said

Bill Adams,

chief economist for Comerica Bank. “I expect real GDP growth will likely turn negative in the first half of this year.”

A buildup in inventories helped drive economic growth at the end of last year. That category is volatile, though.

Final sales to private domestic purchasers, a measure of consumer and business spending that gauges underlying demand in the economy, cooled to a 0.2% annual pace in the fourth quarter from 1.1% in the third, the Commerce Department said, a sign of economic cooling in line with the Fed’s goals.

One of the most interest-rate-sensitive sectors—housing—is stumbling amid high mortgage rates. Residential investment declined throughout last year, while existing-home sales fell almost 18% in 2022 from the previous year.

Some economists say the worst of the housing downturn is over as mortgage rates are down from their peak last fall. But few expect a return to the boom times of 2021 any time soon.

The Fed had initially hoped it could bring down inflation with only a slowing in economic growth rather than an outright contraction, an outcome dubbed a “soft landing.”

“If we continue to get strong job growth and if we continue to get consumer spending on services, and companies don’t cut back on [capital expenditures], I think that adds fuel to the soft-landing story,” said Luke Tilley, chief economist at Wilmington Trust.

Consumer spending rose by 1.9% in the fourth quarter of 2022 compared with a year earlier, a slowdown from 7.2% growth in 2021 but close to 2019’s gain.

StoryBright Films, which provides photography and planning services for elopements in the Blue Ridge Mountains, photographed 16 couples’ elopements last year, down from 20 in 2021, said Mark Collett, the company’s co-owner.

Mr. Collett said his small business received many inquiries and engaged in conversations with a lot of potential clients last year. But more couples expressed concern about their financial situations and ability to pay for a big event than a year earlier.

“We would even get as far as sending them a contract to book, but then they got cold feet,” Mr. Collett said.

For 2022 marriages, clients tended to book at the bottom and top ends of the price range, rather than the middle, he added.

Purchasing power from paychecks fell for middle-income households last year, while it rose for lower-income and higher-income households. Many lower-income households benefited from wage increases and pandemic savings, while higher-income households had a large-enough savings buffer to spend aggressively.


Spending

on services

remained a

contributor.

Goods spending

(pct. pts.)

A shrinking trade

deficit continued

to drive growth,

but less so than in

the third quarter.

Residential

investment

was a drag

on growth.

Spending

on services

remained a

contributor.

Goods spending

(pct. pts.)

A shrinking trade

deficit continued

to drive growth,

but less so than in

the third quarter.

Residential

investment

was a drag

on growth.

Spending

on services

remained a

contributor.

Goods spending

(pct. pts.)

The trade deficit

continued to

drive growth, but

less so than in

the third quarter.

Residential

investment

was a drag

on growth.

Goods

spending

(pct. pts.)

Goods

spending

(pct. pts.)

Write to Sarah Chaney Cambon at sarah.chaney@wsj.com

Write to Sarah Chaney Cambon at sarah.chaney@wsj.com

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Business

U.S. Retail Sales Fell 1.1% in December

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Purchases at stores, restaurants and online, declined a seasonally adjusted 1.1% in December from the prior month, the Commerce Department said Wednesday. Sales were also revised lower in November and have fallen three of the past four months. The department seasonally adjusts monthly data to make it comparable over time. On an unadjusted basis, December is typically the peak sales month for the year.

A Federal Reserve report Wednesday found economic activity was relatively flat at the start of the year and businesses are pessimistic about growth in the months ahead. A separate Fed report showed U.S. industrial production slumped in December, led by weakness in manufacturing. A Labor Department report showed inflation was cooling.

Stocks fell Wednesday after the data releases. The S&P 500 shed 1.6%. The Dow Jones Industrial Average was down 1.8%, while the Nasdaq Composite Index lost 1.2%. The yield on the benchmark 10-year Treasury note declined 0.16 percentage point to 3.374%.

The latest data add to signs that the U.S. economy is slowing as the Fed pushes up interest rates to combat inflation. Hiring and wage growth eased in December, U.S. commerce with the rest of the world declined significantly in November, and existing-home sales have fallen for 10 straight months.

S&P Global downgraded its estimate for fourth-quarter economic growth Wednesday by a half percentage point to a 2.3% annual rate. Economists surveyed by The Wall Street Journal this month expect higher interest rates to tip the U.S. economy into a recession in the coming year.

“The lag impact of elevated inflation weighs heavily on U.S. households, it’s very clear that the median American consumer is still reeling from the loss of wages in inflation-adjusted terms,” said

Joseph Brusuelas,

chief economist at RSM US LLP. “We’re moving towards what I would expect to be a mild recession in 2023,” he added.

Federal Reserve Bank of St. Louis President

James Bullard

said Wednesday the central bank should keep on rapidly raising interest rates and supported a half-percentage-point increase at the Jan. 31-Feb. 1 meeting. 

“We want to err on the tighter side to make sure we get the disinflationary process to take hold in the economy,” he said at a Wall Street Journal Live event.

Mr. Bullard’s position is at odds with several of his colleagues, who have suggested that a slower pace of rate increases would be appropriate to allow Fed officials to gauge how their aggressive pace of policy tightening has affected the economy.

Inflation, while still historically high, is showing signs of cooling as demand eases. Unlike many government reports, retail sales aren’t adjusted for inflation. 

Consumer prices advanced 6.5% from a year earlier in December, the sixth straight month of deceleration. The producer-price index, which generally reflects supply conditions in the economy, fell in December from the prior month, and increased at the slowest annual pace since March 2021, the Labor Department said Wednesday.

The National Retail Federation said Wednesday holiday sales were disappointing. The trade group said November and December sales rose 5.3% compared with the same period last year to $936.3 billion. In November, the NRF said it expected holiday sales to rise between 6% and 8%. The NRF figures aren’t adjusted for inflation and exclude fuel, auto and restaurant spending.

Somewhat slower inflation at the end of the year didn’t offset weaker demand, said NRF Chief economist

Jack Kleinhenz.

 Consumers are “hit with higher food prices, they are getting hit with higher service prices and they are having to make choices,” he said. Some spending was likely pulled into October as retailers kicked off deals early this year, he added. Retailers discounted heavily and early to clear excess stock from their shelves and warehouses.

Zach Carney, of Boston, said he has been cutting back on eggs and red meat because the prices are so high. “The price of eggs really jumps out at you,” the 28-year-old publicist said. Instead, he has been stocking up on value packs of chicken and buying more store-brand cereal and olive oil, which cost less than national brands.

In 2021, officials thought high inflation would be temporary. But a year later, it was still near a four-decade high. WSJ’s Jon Hilsenrath explains factors that have kept inflation up longer than expected. Illustration: Jacob Reynolds

The retail sales report showed spending declined in a number of gift-giving categories in December, including at electronics, clothing and department stores, and with online retailers, a category which includes companies such as Amazon.com Inc.

Dining out at bars and restaurants dropped 0.9% in December. Sales of furniture and vehicles, which are sensitive to higher borrowing costs, both fell sharply. The only categories to post slight growth in December were grocery, sporting goods and home improvement stores, as winter storms battered many parts of the U.S.

Some retailers have said the recently completed holiday shopping season turned out to be weaker than expected. Macy’s Inc. warned of softer sales, and Lululemon Athletica Inc. said its profit margins were squeezed as shoppers bought more items on sale.

Many retailers had benefited from surging sales earlier in the pandemic as shoppers stocked up on everything from toilet paper to home electronics and furniture, supported by government stimulus dollars. Those tailwinds have cooled, leaving retailers and product manufactures to confront slower spending in some categories and the longer term dynamics of the industry, such as a gradual shift to online spending.

Apparel retailers are especially exposed to the current pullback in discretionary spending, said Kelly Pedersen, the U.S. retail leader at PwC, a consulting firm. “Buying fashion items at department stores is discretionary,” said Mr. Pedersen. Many apparel retailers are still working to sell through excess inventory and offering deep discounts amid weak demand, he said. 

Department stores, which saw a 6.6% sales drop in December, struggled to boost sales before the pandemic quickly shifted buying habits. In 2020, a string of department stores filed for bankruptcy, including Lord & Taylor, J.C. Penney Co., Neiman Marcus Group Ltd. and Stage Stores Inc. 

Party City Holdco Inc. filed for chapter 11 bankruptcy this week while noting inflationary pressures have hampered customers’ willingness to spend. Bed Bath & Beyond Inc. said this month it plans more layoffs and cost cuts amid falling sales.

The retail sales report offers a partial picture of consumer demand because it doesn’t include spending on many services such as travel, housing and utilities. The Commerce Department will release December household spending figures covering goods and services later this month.

Corporate reports out in February will add to that picture. Walmart Inc., Target Corp. and other large retailers—which sell a variety of goods such as food, clothes and décor—report quarterly earnings next month, which will include December sales.

—Suzanne Kapner and David Harrison contributed to this article.

Write to Harriet Torry at harriet.torry@wsj.com and Sarah Nassauer at Sarah.Nassauer@wsj.com

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Business

China’s Shrinking Population Is Deeper Problem Than Slow Growth for Its Economy

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Economists said China’s shrinking population poses a major future challenge for the world’s second-largest economy, while President Xi Jinping’s top economic adviser sought Tuesday to restore investor confidence after one of the most disappointing growth rates in decades.

China has already rolled back the zero-Covid policies that restrained growth for much of 2022, setting the stage for a recovery this year. The U-turn, in the wake of public protests, was part of a broad policy reset aimed at boosting the economy, including an easing of regulations on the property sector and signals that the clampdown on the tech sector has ended.

Beijing is now betting on a robust rebound in economic activities as officials increasingly signal that the recent wave of infections is reaching its peak. Some government advisers say the central leadership likely will announce a growth target of between 5% and 5.5% for 2023 at the coming legislative sessions in March. China on Tuesday posted 3% growth for 2022, its second-worst growth rate since 1976.

Speaking to the World Economic Forum in Davos, Mr. Xi’s top economic adviser, Vice Premier Liu He, sought to send a message to investors and executives that China’s growth would return to prepandemic levels this year as the country reopens.

On a Davos panel titled “China’s Next Chapter,” speakers also projected optimism. China’s reopening and exit from its zero-Covid policy is the “most positive catalyst” for global markets this year, said

Hong Kong Exchanges and Clearing Ltd.

’s Chief Executive

Nicolas Aguzin.

Vice Premier Liu He sought to restore investor confidence in China at the World Economic Forum in Davos, Switzerland.



Photo:

Markus Schreiber/Associated Press

“If China produces a solid growth number for 2023, 5% or 5% plus, that will actually underpin much global growth for the year to come,” said

Kevin Rudd,

president and CEO of Asia Society.

China’s recent measures, however, won’t address a host of challenges, some of which were exacerbated by the pandemic. A rapidly aging population, slowing growth in productivity, high debt levels and rising social inequality will weigh on the country’s economic ascent for decades to come, economists said.

On Tuesday, the same day that China posted 3% growth, the second-worst growth rate since 1976, it also said that for the first time since 1961, its population shrank.

China’s population dropped by 850,000 to 1.412 billion. The shift toward a shrinking population, which came faster than Beijing had projected, marks a watershed moment in China’s history with profound implications for its economy and its status as the world’s factory floor.

The demographic milestone comes when, despite its enormous size, China’s economy is still that of a middle-income, developing country, as measured by average worker incomes when compared with the U.S. and other rich-country peers. China’s leaders have long held the ambition of leapfrogging the U.S. to become the world’s biggest economy, a task made harder by this strengthening demographic headwind, economists say.

The global economy has grown to rely on China’s vast pool of workers for manufactured goods.



Photo:

Kyodonews/Zuma Press

“The likelihood of China someday overtaking the U.S. as No. 1 economy has just gone down a notch,” said Roland Rajah, lead economist at the Lowy Institute, a Sydney think tank.

The global economy has grown to rely on China’s vast pool of factory workers for manufactured goods, and its consumers represent a growing market for Western-made cars and luxury goods. A dwindling population means fewer consumers when China is under pressure to power growth through greater consumption instead of investment and exports.

Any rebound in consumption will also likely be constrained by a weak labor market and a housing downturn that has eroded the wealth of Chinese families. The jobless rate among people age 16 to 24 remained elevated at 16.7% in December, versus the peak of near 20% last summer. Growth in disposable income per capita could slow to around 4% each year in the next five years, downshifting from around 8% before the pandemic, according to David Wang, chief China economist at

Credit Suisse.

A smaller workforce will likely restrain economic growth. An economy can only grow by adding workers or producing more with the workers it has. China’s working-age population, which peaked around 2014, is expected to fall by 0.2% a year until 2030, according to S&P Global Ratings.

Productivity growth has been slowing. It slid to 1.3% on average in the 10 years through 2019, from 2.7% in the preceding decade, according to estimates from the Conference Board, a nonprofit research organization.

“It seems like it’s going to get old before it gets rich,” said Andrew Harris, deputy chief economist at Fathom Consulting in London.

Countries around the world are welcoming back Chinese tourists, once the largest source of tourism revenue globally. But even as China reopens its borders, the travel industry isn’t expecting things to bounce back to what they were just yet. Here’s why. Photo illustration: Adam Adada

There are some grounds for optimism, economists say. China could make better, more productive use of underemployed urban workers in state-owned enterprises as well as those still laboring in the countryside.

It is also adding automation and related technology to its factories rapidly, replacing or augmenting its shrinking pool of workers. Advances in robotics, artificial intelligence and other high-tech sectors that could turbocharge worker productivity “is the potential out for China,” Mr. Harris said, though he added whether it will succeed or not is unclear.

Meanwhile, China remains tied to its old playbook of fueling growth by encouraging governments and companies to borrow more to fund investments, a model that economists warn will be unsustainable in the long run.

The country’s overall debt as a share of its economy reached a high during the pandemic, as local governments borrowed to finance infrastructure projects and boost the economy. As of June 2022, credit to the nonfinancial sector reached $51.8 trillion, or 295% of gross domestic product, according to data from the Bank for International Settlements.

China’s policies throughout the pandemic have focused heavily on the supply-side rather than the demand-side of the economy. Unlike many countries in the West, the Chinese government refrained from handing out cash to households, directing most of its efforts toward supporting manufacturers.

“The systemic problems that China had in its economy before Covid are still there,” said

George Magnus,

an economist and research associate at Oxford University, “In some aspects, the pandemic made them worse.”

A dwindling population means fewer consumers as China is under pressure to power growth through consumption.



Photo:

Qilai Shen/Bloomberg News

Despite the optimism expressed by some speakers in Davos, investors and corporate executives both inside and outside China remain wary of Beijing’s willingness to sufficiently roll back its restrictions on businesses of the past few years to re-embrace private capital.

Mr. Liu sought to allay those concerns during his Tuesday speech. He told the Davos crowd that a return to a planned economy, where the party-state dictates economic activities, is impossible.

But economists say Mr. Xi’s drive for self-sufficiency across a range of industries and his penchant for dictating how private business should be run will continue to sap vitality from the economy.

To achieve self-reliance in key sectors, Beijing has focused on channeling low-cost loans to favored sectors, such as semiconductors, renewable energy and pharmaceuticals. But the spending, which often involves less-productive state-owned enterprises, has also been plagued by waste and corruption, economists say, with limited evidence of real innovation.

“Xi’s desire to make sure that the Party’s control extends across society runs far deeper than his commitment to growing a market economy,” said Mark Williams, chief Asia economist at Capital Economics.

—Rebecca Feng contributed to this article.

Write to Stella Yifan Xie at stella.xie@wsj.com and Jason Douglas at jason.douglas@wsj.com

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Business

Hiring, Wage Gains Eased in December, Pointing to a Cooling Labor Market in 2023

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The U.S. labor market is losing momentum as hiring and wage growth cooled in December, showing the effects of slower economic growth and the Federal Reserve’s interest-rate increases.

After two straight years of record-setting payroll growth following the pandemic-related disruptions, the labor market is starting to show signs of stress. That suggests 2023 could bring slower hiring or outright job declines as the overall economy slows or tips into recession.

Employers added 223,000 jobs in December, the smallest gain in two years, the Labor Department said Friday. Average hourly earnings were up 4.6% in December from the previous year, the narrowest increase since mid-2021, and down from a March peak of 5.6%.

All told, employers added 4.5 million jobs in 2022, the second-best year of job creation after 2021, when the labor market rebounded from Covid-19 shutdowns and added 6.7 million jobs. Last year’s gains were concentrated in the first seven months of the year. More recent data and a wave of tech and finance-industry layoffs suggest the labor market, while still vibrant, is cooling.

“I do expect the economy to slow noticeably by June, and in the second half of the year we’ll see a greater pace of slowing if not outright contraction,” said

Joe Brusuelas,

chief economist at RSM U.S.

Friday’s report sent markets rallying as investors anticipated it would cause the Fed to slow its pace of rate increases. The central bank’s next policy meeting starts Jan. 31. The Fed’s aggressive rate increases aimed at combating inflation didn’t significantly cool 2022 hiring, but revisions to wage growth showed recent gains weren’t as brisk as previously thought.

The Dow Jones Industrial Average rose 700.53 points, or 2.13%, on Friday. The S&P 500 Index was up 2.28% and NASDAQ Composite Index advanced 2.56%. The benchmark 10-year Treasury yield declined 0.15 percentage point to 3.57%. Yields fall as bond prices rise.

The unemployment rate fell to 3.5% in December from 3.6% in November, matching readings earlier in 2022 and just before the pandemic began as a half-century low. Fed officials said last month the jobless rate would rise in 2023. December job gains were led by leisure and hospitality, healthcare and construction.

Historically low unemployment and solid hiring, however, might mask some signs of weakness. The labor force participation rate, which measures the share of adults working or looking for work, rose slightly to 62.3% in December but is still well below prepandemic levels, one possible factor that could make it harder for employers to fill open positions.

The average workweek has declined over the past two years and in December stood at 34.3 hours, the lowest since early 2020.

Hiring in temporary help services has fallen by 111,000 over the past five months, with job losses accelerating. That could be a sign that employers, faced with slowing demand, are reducing their employees’ hours and pulling back from temporary labor to avoid laying off workers.

The tech-heavy information sector lost 5,000 jobs in December, the Labor Department report showed. Retail saw a 9,000 rise in payrolls, snapping three straight months of declines.

Tech companies cut more jobs in 2022 than they did at the height of the Covid-19 pandemic, according to layoffs.fyi, which tracks industry job cuts. On Wednesday,

Salesforce Inc.

said it would cut 10% of its workforce, unwinding a hiring spree during the pandemic. The Wall Street Journal reported that

Amazon.com Inc.

would lay off 18,000 people, roughly 1.2% of its total workforce. Other companies, such as

Facebook

parent

Meta Platforms Inc.,

DoorDash Inc.

and

Snap Inc.,

have also recently cut positions.

Companies in the interest-rate-sensitive housing and finance sectors, including

Redfin Corp.

,

Morgan Stanley

and

Goldman Sachs Group Inc.,

have also moved to reduce staff.


Months where overall jobs gained

Months where overall jobs declined

By the end of 2022, the U.S. had added nearly 2 million jobs since the end of 2019

More than 20 million jobs were lost near the start of the pandemic

Employment returns to prepandemic level

A monthly gain of more than 4 million jobs

Months where

overall jobs gained

Months where

overall jobs declined

By the end of 2022, the U.S. had added nearly 2 million jobs since the end of 2019

More than 20 million jobs were lost near the start of the pandemic

Employment returns to prepandemic level

A monthly gain of more than 4 million jobs

Months where

overall jobs gained

Months where

overall jobs declined

By the end of 2022, the U.S. had added nearly 2 million jobs since the end of 2019

More than 20 million jobs were lost near the start of the pandemic

Employment returns to prepandemic level

A monthly gain of more than 4 million jobs

Months where

overall jobs gained

Months where

overall jobs declined

By the end of 2022, the U.S. had added nearly 2 million jobs since the end of 2019

More than 20 million jobs were lost near the start of the pandemic

Employment returns to prepandemic level

A monthly gain of more than 4 million jobs

Months where

overall jobs gained

Months where

overall jobs declined

By the end of 2022, the U.S. had added nearly 2 million jobs since the end of 2019

More than 20 million jobs were lost near the start of the pandemic

Employment returns to prepandemic level

A monthly gain of more than 4 million jobs

Other data released this week point to a slowing U.S. economy. New orders for manufactured goods fell a seasonally adjusted 1.8% in November, the Commerce Department said Friday. Business surveys showed a contraction in economic activity in December, according to the Institute for Supply Management. Manufacturing firms posted the second-straight contraction following 29 months of expansion, and services firms snapped 30 straight months of growth in December.

Economists surveyed by The Wall Street Journal last fall saw a 63% probability of a U.S. recession in 2023. They saw the unemployment rate rising to 4.7% by December 2023.

“We’ve obviously been in a situation over the past few months where employment growth has been holding up surprisingly well and is slowing very gradually,” said

Andrew Hunter,

senior U.S. economist at Capital Economics. “There are starting to be a few signs that we’re maybe starting to see a bit more of a sharp deterioration.”

Max Rottersman, a 61-year-old independent software developer, said he had been very busy with consulting jobs during much of the pandemic. But that changed over the summer when work suddenly dried up.

“I’m very curious to see whether I’m in high demand in the next few months or whether—what I sort of expect will happen—there will be tons of firing,” he said.

Despite some signs of cooling, the labor market remains exceptionally strong. On Wednesday, the Labor Department reported that there were 10.5 million job openings at the end of November, unchanged from October, well more than the number of unemployed Americans seeking work.

Some of those open jobs are at Caleb Rice’s home-renovation business in Calhoun, Tenn., which has been consistently busy since the start of the pandemic. The small company has raised pay and gone to a four-day week in an effort to hold on to workers.

“If I could get three more skilled hands right now, I’d be comfortable,” Mr. Rice said. “The way it goes is I’ll hire five, two will show up and of those two one won’t be worth a flip.”

Fed officials have been trying to engineer a gradual cooling of the labor market by raising interest rates. Officials are worried that a too-strong labor market could lead to more rapid wage increases, which in turn could put upward pressure on inflation as firms raise prices to offset higher labor costs.

The central bank raised rates at each of its past seven meetings and has signaled more rate increases this year to bring inflation down from near 40-year highs. Fed officials will likely take comfort in the slowdown in wage gains, which could prompt them to raise rates at a slower pace, Mr. Brusuelas, the economist, said.

“We’re closer to the peak in the Fed policy rate than we were prior to the report, and the Fed can strongly consider a further slowing in the pace of its hikes,” he said. “We could plausibly see a 25-basis-point hike versus a 50-basis-point hike at the Feb. 1 meeting.”

Write to David Harrison at david.harrison@wsj.com

Corrections & Amplifications
A graphic in an earlier version of this article showing the change in nonfarm payrolls since the end of 2019 was incorrectly labeled as change since January 2020. (Corrected on Jan. 6)

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Business

Stay for Pay? Companies Offer Big Raises to Retain Workers

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Workers who stay put in their jobs are getting their heftiest pay raises in decades, a factor putting pressure on inflation.

Wages for workers who stayed at their jobs were up 5.5% in November from a year earlier, averaged over 12 months, according to the Federal Reserve Bank of Atlanta. That was up from 3.7% annual growth in January 2022 and the highest increase in 25 years of record-keeping.

Faster wage growth is contributing to historically high inflation, as some companies pass along price increases to compensate for their increased labor costs. Prices rose at their fastest pace in 40 years earlier in 2022. Inflation has cooled in recent months but remains high. Federal Reserve officials are closely monitoring wage gains as they consider future interest-rate increases to slow the economy and bring down inflation. 

Employees who changed companies, job duties or occupations saw even greater wage gains of 7.7% in November from a year earlier. The prospect that employees might leave for bigger paychecks is a main reason companies are raising wages for existing employees. 

Many workers aren’t feeling the pay gains, though. Wages for all private-sector workers declined by 1.9% over the 12 months that ended in November, after accounting for annual inflation of 7.1%, according to the Labor Department.

Workers in sectors such as leisure and hospitality can easily find job openings that might pay more, making it more enticing to switch jobs, said

Layla O’Kane,

senior economist at Lightcast.

“If I can see that the Burger King down the street is offering $22 an hour, and I’m making $20 an hour at the Dunkin’ Donuts that I work at, then I know very clearly what my opportunity cost is,” she said. “Employers are reacting to that and saying, ‘Well, we’re going to increase wages internally because we don’t want to lose the staff that we’ve already trained.’”

Employee bargaining power has increased as the economy rebounded from the pandemic, likely emboldening some employees to ask for wage increases from their current employers, Ms. O’Kane added. 

Alexandria Carter,

a billing specialist and accountant at an insurance company in Baltimore, received a promotion and a small pay bump earlier in 2022. After her year-end performance review, she received another 7% pay increase to reward her for her progress, and her bosses told her about their plans for her to keep moving up in the company. 

That was a contrast with some previous jobs she has held, where praise and pay raises were less forthcoming.

“They were telling me that I’m excelling in my position, and I just got it,” she said. “To have that recognition and that they notice the work I’ve put in and to be rewarded, it’s just nice.”

Alexandria Carter, a Baltimore billing specialist and accountant, got a promotion and two pay increases this past year.



Photo:

Alexandria Carter

There are signs wage gains are beginning to ease as the tight labor market loosens a bit. Average hourly earnings were up 5.1% in November from a year earlier, slowing from a recent peak of 5.6% in March. Many analysts expect wage growth could cool further in coming months.

In industries with high demand for workers, “companies are prepared for wage growth to match inflation,” said

Paul McDonald,

senior executive director at Robert Half, a professional staffing company. “As inflation comes down, it will be more in line with what wage growth has been.”

The consumer-price index, a measurement of what consumers pay for goods and services, climbed 7.1% in November from a year earlier, down from 7.7% in October. The pace built on a trend of moderating price increases since June’s 9.1% peak.

Still, wage pressures will likely continue in a competitive job market where poaching remains common. More than half of professionals feel underpaid, and four in 10 workers would leave their jobs for a 10% raise elsewhere, according to a Robert Half survey released in September.

Famous Toastery, a Charlotte, N.C.-based breakfast, brunch and lunch chain, is raising pay faster than ever before, said

Mike Sebazco,

the company’s president. Across the eight company-owned locations, wages for existing kitchen staff members are up about 15% from a year earlier.

“We didn’t want to be as easy to poach,” he said. It isn’t uncommon for managers from other companies to come to Famous Toastery’s dumpster pads to tell the breakfast chain’s workers, “‘Hey, come work for me, and I’ll give you an extra $2 an hour,’” Mr. Sebazco said.

To help cover higher labor costs, Famous Toastery raised menu prices in August for items such as the Western omelet composed of ham, roasted peppers, caramelized onions and American cheese. 

“Bacon and eggs and a lot of produce items will go up and down, and you can weather that,” Mr. Sebazco said. “We’ve never really experienced labor increases such as this.”

Many businesses in the Boston Fed district cited labor costs as a bigger source of inflationary pressure for 2023 than other types of expenses, according to the central bank’s collection of business anecdotes known as the Beige Book. 

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Most business executives remain confident that they can pass along wage increases to consumers in the form of higher prices, said

Lauren Mason,

senior principal at consulting firm Mercer LLC. “This makes compensation investments somewhat easier to absorb,” she said.

Wage and price increases can feed off each other. In fact, higher inflation is pushing some workers to seek cost-of-living increases, helping contribute to wage growth among job stayers, economists say.

More broadly, pay is rising for both job stayers and switchers because companies can’t find enough workers. Across the economy, job openings—at 10.3 million in October—far exceeded the 6.1 million unemployed Americans looking for work that month.

Companies are using merit-pay increases to hold on to employees and minimize the potential productivity drain of recruiting and training new hires. Firms are budgeting more for merit-pay increases in 2023 than they have in 15 years, according to a Mercer survey of more than 1,000 companies. 

Daniel Powers,

a recent college graduate, received a 10% year-end raise at a management consulting firm in Chicago, after starting out with a six-figure salary when he was hired in September.

“They understand the realities of the market—there’s no false illusion of, ‘we’re family here,’” Mr. Powers said of his firm’s management.

Write to Gabriel T. Rubin at gabriel.rubin@wsj.com and Sarah Chaney Cambon at sarah.chaney@wsj.com

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Business

Laid Off Tech Workers Quickly Find New Jobs

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Most laid off tech workers are finding jobs shortly after beginning their search, a new survey shows, as employers continue to scoop up workers in a tight labor market.

About 79% of workers recently hired after a tech-company layoff or termination landed their new job within three months of starting their search, according to a

ZipRecruiter

survey of new hires. That was just below the 83% share of all laid-off workers who were re-employed in the same time frame.

Nearly four in 10 previously laid off tech workers found jobs less than a month after they began searching, ZipRecruiter found in the survey. 

“Despite the widespread layoffs, hiring freezes, and cost-cutting taking place in tech, many tech workers are finding reemployment remarkably quickly,” said

Julia Pollak,

chief economist at ZipRecruiter. “They’re still the most sought-after workers with the most in-demand skills.” 

Job openings across the economy—at 10.3 million—are down from record highs but far exceed the number of unemployed Americans, providing opportunities for workers who lose their jobs and those who choose to seek another.

Workers previously employed in other industries, including entertainment and leisure, transportation and delivery, and manufacturing, also found new jobs quickly, the ZipRecruiter data showed.

The job market for tech workers is slowing as the broader economy falters under the pressure of Federal Reserve interest rate increases and high inflation. Layoffs and hiring freezes are occurring at startups and large tech companies such as Amazon.com Inc. and

Facebook

parent Meta Platforms Inc. that hired aggressively early on in the pandemic. The cuts are hitting workers in tech jobs—such as software engineers—and other corporate roles including recruiters.

Still, tech firms making cuts are outnumbered by those that are hiring.

A smaller share of tech workers is spending long periods searching for work after a layoff. About 5% of laid off tech workers who found jobs from April to October had spent more than six months hunting for work, down from 26% of those hired between August 2021 and February 2022, ZipRecruiter said.

Wen Huber, age 23, was laid off from a videographer job at a real estate tech startup in late July. Mr. Huber, who lives near Seattle, thought it would take awhile to land a new position, given he didn’t have a four-year-college degree and many other job seekers were flooding the tech job market.

“When I was applying, to be honest, I didn’t feel very confident because there was such an influx of competition with a lot of people also being laid off,” he said. 

Mr. Huber had built up a savings buffer, allowing him to be more selective in his job hunt as he sought to pivot into social media. He documented his unemployment experience in a series of videos on LinkedIn. The videos helped him land an interview—and ultimately an offer—for a social media manager job at a software startup, Mr. Huber said. He started in September.

“I was surprised at how quickly I was able to secure an offer for a job,” he said.

Wen Huber landed a job offer for a social media manager position within one-and-a-half months of his layoff.



Photo:

Devon Potts

Short job searches in tech have become slightly less common as the labor market slows from earlier in the year. Among people who recently lost a job and worked in tech previously, 37% found a new position within one month of starting to look, according to ZipRecruiter. That compared with 50% in February’s survey. 

“We’ve definitely seen a slowdown in hiring, but the reason why is that the job creation level was beyond record highs because of the slingshot effect of the pandemic,” said Ryan Sutton, district president at Robert Half, a global recruitment firm. “From August 2020 to May 2022, it wasn’t red-hot. It was lava-hot.”

Usually when mass layoffs hit, there is an influx of tech candidates contacting his company to help with their job search, Mr. Sutton said. 

“We have not seen it yet—we haven’t seen more candidates coming to market,” he said. “Our recruiters are having to hunt and hustle just as much as they had to in the last couple of years.” 

Client firms in tech also haven’t mentioned any plans to cut jobs, Mr. Sutton said. 

About 74% of workers recently hired after losing or leaving a job at a tech company remained in the industry, according to ZipRecruiter. Others who previously worked at tech companies switched to firms in industries such as retail, financial services and healthcare in the six months ending in mid-October. 

The recent headlines about tech layoffs don’t seem to match broader economic indicators, which show a strong job market and a historically low unemployment rate. WSJ’s Gunjan Banerji explains the disconnect. Illustration: Ali Larkin

Pinnacol Assurance, a 650-person workers’ compensation insurer, saw a 46% increase in job candidates from big tech companies including Meta, Microsoft and Twitter between September and mid-December, said Tim Johnson, the company’s chief human resources officer.

The influx of applicants has helped Pinnacol fill tech-related roles such as data scientist, machine-learning engineer and cloud architect in recent months. In mid-December, Pinnacol’s recruiting team made an offer to a job candidate from Google, Mr. Johnson said.

Ayanna Chapman, 42, started a systems-engineering job job at Pinnacol overseeing its computer systems in mid-November after she was laid off from another systems-engineer position this spring. 

“‘Our recruiters are having to hunt and hustle just as much as they had to in the last couple of years.’”


— Ryan Sutton of global recruitment firm Robert Half

A generous severance package allowed her to take several months to freshen skills and study for certifications including in the Python programming language. When the Atlanta–area resident began looking for work in the second week of October, recruiters quickly reached out with interview opportunities, she said.

Ms. Chapman was keen on finding a job with stability and thought Pinnacol would fit. She received an offer from the Denver–based company about two weeks after beginning the interview process, much faster than previous experiences, she said.

“I literally cried tears of joy like, ‘Oh, my God, I got the job. I can’t believe it,’” Ms. Chapman said.

Employers broadly are responding to job candidates fast, likely for fear of losing them in a competitive market with a historically low jobless rate of 3.7%. Nine in 10 ZipRecruiter survey respondents said they heard back from a recruiter or hiring manager within a week of applying for a job.

ZipRecruiter’s most recent survey was drawn from 2,550 U.S. residents who had started a new job within the six months ending in mid-October. The data align with other job-market figures that signal the hot labor market is cooling. 

Of the ZipRecruiter survey respondents who said they previously worked in tech, most of them likely worked for tech companies regardless of their occupation, Ms. Pollak said. In other words, a recruiter at Amazon would likely be classified as a tech-industry worker in the survey. But a data scientist at

Home Depot

would be a retail-industry worker.

Separate labor-market figures suggest employers across industries are still seeking to hire tech workers, though less so than earlier in the pandemic. Postings on job-site Indeed for tech occupations are still well above prepandemic levels, but have fallen steeply over the past year. 

Software developer job ads on Indeed are down 34% from a year earlier, and ads for mathematics roles—which include data scientists—are 28% lower. Overall postings are down 7.7% from a year ago.

“With tech workers, it’s a much bigger pullback,” said

Nick Bunker,

an economist at Indeed Hiring Lab. “It’s still above prepandemic levels, but if the current trend keeps up, I don’t imagine that talking point will be true anymore at some point next year.”

The uncertain economic outlook is likely weighing on employers’ appetite for white-collar workers, since they tend to base hiring plans for higher-paid workers on the longer-term business outlook, said Mr. Bunker. By contrast, firms usually gear hiring for waiters, deliverers and other lower-paid jobs according to immediate business needs, he said.

Many companies with among the highest shares of new tech job postings on Indeed in late November were in industries such as consulting, financial services and aerospace.

“For tech jobs, it is still a relatively healthy economic climate and relatively healthy labor market,” said Scott Dobroski, Indeed career expert. “A lot of bright spots for tech workers currently lie outside of traditional tech companies.”

U.S. aerospace companies cut more than 100,000 workers during the pandemic, but have been hiring back at a fast clip and struggling for a year with staffing shortages that have crimped supply chains.

Raytheon Technologies Corp.

CEO

Greg Hayes

said during the summer he was optimistic that layoffs among tech companies would start to ease his own hiring challenges. There are signs that is happening.

“We are starting to see an uptick in interest from the tech layoffs,” said

Mike Dippold,

chief financial officer of

Leonardo DRS Inc.,

which is based Arlington, Va.

Mr. Dippold said the defense-sensor specialist, like many peers, still had more open positions than it would like, but the staffing situation was starting to improve.

—Doug Cameron contributed to this article.

Write to Sarah Chaney Cambon at sarah.chaney@wsj.com and Gwynn Guilford at gwynn.guilford@wsj.com

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The stock market is sliding because investors fear recession more than inflation

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A stock-market paradox, in which bad news about the economy is seen as good news for equities, may have run its course. If so, investors should expect bad news to be bad news for stocks heading into the new year — and there may be plenty of it.

But first, why would good news be bad news? Investors have spent 2022 largely focused on the Federal Reserve and its rapid series of large rate hikes aimed at bringing inflation to heel. Economic news pointing to slower growth and less fuel for inflation could serve to lift stocks on the idea that the Fed could begin to slow the pace or even begin entertaining future rate cuts.

Conversely, good news on the economy could be bad news for stocks.

So what’s changed? The past week saw a softer-than-expected November consumer-price index reading. While still running mighty hot, with prices rising more than 7% year over year, investors are increasingly confident that inflation likely peaked at a roughly four-decade high above 9% in June.

See: Why November’s CPI data are seen as a ‘game-changer’ for financial markets

But the Federal Reserve and other major central banks indicated they intend to keep lifting rates, albeit at a slower pace, into 2023 and likely keep them elevated longer than investors had anticipated. That’s stoking fears that a recession is becoming more likely.

Meanwhile, markets are behaving as if the worst of the inflation scare is in the rearview mirror, with recession fears now looming on the horizon, said Jim Baird, chief investment officer of Plante Moran Financial Advisors.

That sentiment was reinforced by manufacturing data Wednesday and a weaker-than-expected retail sales reading on Thursday, Baird said, in a phone interview.

Markets are “probably headed back to a period where bad news is bad news not because rates will be driving concerns for investors, but because earnings growth will falter,” Baird said.

A ‘reverse Tepper trade’

Keith Lerner, co-chief investment officer at Truist, argued that a mirror image of the backdrop that produced what became known as the “Tepper trade,” inspired by hedge-fund titan David Tepper in September 2010, may be forming.

Unfortunately, while Tepper’s prescient call was for a “win/win scenario.” the “reverse Tepper trade” is shaping up as a lose/lose proposition, Lerner said, in a Friday note.

Tepper’s argument was that the economy was either going to get better, which would be positive for stocks and asset prices. Or, the economy would weaken, with the Fed stepping in to support the market, which would also be positive for asset prices.

The current setup is one in which the economy is going to weaken, taming inflation but also denting corporate profits and challenging asset prices, Lerner said. Or, instead, the economy remains strong, along with inflation, with the Fed and other central banks continuing to tighten policy, and challenging asset prices.

“In either case, there’s a potential headwind for investors. To be fair, there is a third path, where inflation comes down, and the economy avoids recession, the so-called soft landing. It’s possible,” Lerner wrote, but noted the path to a soft landing looks increasingly narrow.

Recession jitters were on display Thursday, when November retail sales showed a 0.6% fall, exceeding forecasts for a 0.3% decline and the biggest drop in almost a year. Also, the Philadelphia Fed’s manufacturing index rose, but remained in negative territory, disappointing expectations, while the New York Fed’s Empire State index fell.

Read: Still a bear market: S&P 500 slump signals stocks never reached ‘escape velocity’

Stocks, which had posted moderate losses after the Fed a day earlier lifted interest rates by half a percentage point, tumbled sharply. Equities extended their decline Friday, with the S&P 500
SPX,
-1.11%
logging a 2.1% weekly loss, while the Dow Jones Industrial Average
DJIA,
-0.85%
shed 1.7% and the Nasdaq Composite
COMP,
-0.97%
dropped 2.7%.

“As we move into 2023, economic data will become more of an influence over stocks because the data will tell us the answer to a very important question: How bad will the economic slowdown get? That’s the key question as we begin the new year, because with the Fed on relative policy ‘auto pilot’ (more hikes to start 2023) the key now is growth, and the potential damage from slowing growth,” said Tom Essaye, founder of Sevens Report Research, in a Friday note.

Recession watch

No one can say with complete certainty that a recession will occur in 2023, but it seems there’s no question corporate earnings will come under pressure, and that will be a key driver for markets, said Plante Moran’s Baird. And that means earnings have the potential to be a significant source of volatility in the year ahead.

“If in 2022 the story was inflation and rates, for 2023 it’s going to be earnings and recession risk,” he said.

It’s no longer an environment that favors high-growth, high risk equities, while cyclical factors could be setting up nicely for value-oriented stocks and small caps, he said.

Truist’s Lerner said that until the weight of the evidence shifts, “we maintain our overweight in fixed income, where we are focused on high quality bonds, and a relative underweight in equities.”

Within equities, Truist favors the U.S., a value tilt, and sees “better opportunities below the market’s surface,” such as the equal-weighted S&P 500, a proxy for the average stock.

Highlights of the economic calendar for the week ahead include a revised look at third-quarter gross domestic product on Thursday, along with the November index of leading economic indicators. On Friday, November personal consumption and spending data, including the Fed’s preferred inflation gauge are set for release.

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Stocks Waver After Producer Prices Rise More Than Expected

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Stocks wavered after producer-price data came in hotter than expected, disappointing investors who had hoped for signs of easing inflation before the Federal Reserve’s meeting next week.

The S&P 500 was flat on Friday morning, while the Dow Jones Industrial Average lost 0.1%. The technology-focused Nasdaq Composite rose 0.2%.

The producer-price index, which measures what suppliers are charging businesses and other customers, climbed 0.3% in November compared with the previous month, the Labor Department said Friday morning, the same as October’s revised 0.3% increase. Economists surveyed by The Wall Street Journal had expected U.S. supplier prices to increase 0.2% for November.

Investors had been hopeful that the inflation reading would offer evidence that price pressures in the U.S. are abating and would help solidify a smaller interest-rate increase next week. The Fed will make its next interest-rate decision on Wednesday, and the PPI data—combined with consumer-price data Tuesday—are expected to factor heavily into the trajectory of interest rates over the coming months.

Stock futures, which had traded higher throughout the morning, turned lower after the data’s release. Yields on U.S. government bonds rose, also reversing their performance earlier in the day.

In recent days, investors have grown increasingly worried that elevated inflation will force the Fed to keep lifting rates to higher levels than once expected, potentially pushing the U.S. economy into a recession.

“Even though the market sometimes seems to ignore Powell, thinking he’s bluffing, he keeps reiterating that he will put this economy into a recession if he has to,” said Eric Sterner, referring to Fed chairman

Jerome Powell.

Mr. Sterner, chief investment officer at Apollon Wealth Management, said he expects markets could retest their recent lows in the first and second quarter of next year.

“We’re stuck in this rut right now waiting for inflation to normalize and it may take all of next year for that to happen,” he said.

Those concerns about how high interest rates might go—and how they will affect the economy—have led to choppy trading in U.S. stocks recently and interrupted a rally that began in October. All three major U.S. indexes are on pace to end the week with losses, breaking a two-week winning streak. As of Thursday, the S&P 500 had fallen 2.7% for the week.

“The markets are so sensitive to this right now,” said Susannah Streeter, senior investment and markets analyst at

Hargreaves Lansdown.

“Although supersized rate hikes are probably in the rearview mirror, it’s about how long more gradual rate increases will continue for, and that’s why you’ve got these twin evils looming: recession and high inflation. That’s the real concern—that we’ll get a stagflation scenario.” 

The S&P 500 on Thursday snapped a five-day losing streak.



Photo:

BRENDAN MCDERMID/REUTERS

Yields on government bonds rose, with the yield on the benchmark 10-year U.S. Treasury note climbing to 3.525%, from 3.492% Thursday. The yield on the two-year note, which is more sensitive to near-term interest-rate expectations, rose to 4.332%. Yields rise when bond prices fall.

Brent crude, the international benchmark for oil prices, climbed 1.1% to $77 a barrel, on pace to possibly break a six-session losing streak that amounted to its longest since August 2021. Oil prices have slumped recently amid concerns that slowing economic growth will impede demand for fuel. Both Brent and its U.S. counterpart WTI—both of which reached eye-popping heights this year—are now trading lower on a year-to-date basis.

Outsize market moves have followed the release of inflation data in recent months.

“When CPI comes out slightly above or slightly below, you get massive market action,” said Brandon Pizzurro, director of public investments at GuideStone Capital Management. “Those of us that are defensively positioned are either going to really benefit from next Tuesday and Wednesday, or feel some short term pain if this Santa Claus rally is kickstarted.”

In China, major indexes climbed amid a sharp rise in property stocks. Hong Kong’s Hang Seng rose 2.3%. In mainland China, the Shanghai Composite added 0.3%, helping it notch its sixth consecutive week of gains. Japan’s Nikkei 225 gained 1.2%.

In Europe, the pan-continental Stoxx Europe 600 rose 0.4%.

Write to Caitlin McCabe at caitlin.mccabe@wsj.com and Jack Pitcher at jack.pitcher@wsj.com 

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Business

Jobs Report Keeps Federal Reserve on Track for 0.5-Point Rate Rise

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Fed officials have warned in recent days that they are likely to lift rates to and hold them at levels high enough to slow economic activity and hiring to bring inflation down from 40-year highs.

The employment report showed continued strong hiring and brisk wage growth, which is a source of concern to Fed officials because they are trying to slow both trends to prevent higher prices and wages from growing embedded across the economy.

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Employers added 263,000 jobs in November and the unemployment rate held steady at 3.7%. But revised wage data released Friday could concern Fed officials because it points to an acceleration in pay gains in recent months.

For the three months through November, average hourly earnings rose at a 5.8% annualized rate, the Labor Department said Friday. That is up from an initially reported 3.9% annualized rate for the three months ended October.

At the same time, senior Fed officials have clearly signaled their expectation that they can cool the pace of rate rises at their Dec. 13-14 meeting, ending an unprecedented string of 0.75-point rate rises at their past four meetings.

The Fed raised its benchmark federal-funds rate last month to a range between 3.75% and 4%, and officials have signaled they are on track to continue raising it to at least around 5% by next spring.

Federal Reserve Chair Jerome Powell said at a Brookings Institution event that the central bank is prepared to slow the pace of rate rises as soon as its December meeting. Photo: Valerie Plesch/Bloomberg News

The Fed’s preferred inflation gauge, the personal-consumption-expenditures price index, rose 6% in October from a year ago. Excluding volatile food and energy categories, the so-called core PCE index rose 5%. Economists often look at core inflation as a better gauge of underlying price pressures. The Fed targets 2% inflation over time.

Current pay gains are around 1.5 to 2 percentage points above what would be consistent with the Fed’s 2% target, Fed Chair

Jerome Powell

said during a moderated discussion on Wednesday. 

“We want wages to go up. We want wages to go up strongly,” he said. “But they’ve got to go up at a level that is consistent with 2% inflation over time.”

Mr. Powell said it was possible prices that rose sharply over the last two years, including housing costs and goods such as used cars, could decline in the coming year. But he signaled concern that inflation might ease to levels that are still too high. “Despite some promising developments, we have a long way to go” in bringing down inflation.

Mr. Powell and several of his colleagues have said they don’t believe wage growth played the primary role in driving up prices. But they are concerned that strong demand for labor and high inflation could create conditions that lead paychecks and prices to move higher in lockstep, which economists sometimes call a wage-price spiral.

“When you get to that point, you’re in serious trouble,” Mr. Powell said Wednesday. “We don’t think we’re at that point. But it can’t be that we can go on for five years at very high levels of inflation and that doesn’t work its way into the wage- and price-setting process pretty quickly.”

Fed officials have signaled they are entering a new phase of raising interest rates after having lifted them at the fastest pace since the early 1980s. Now, they are trying to determine more carefully how high rates will need to go and for how long to lower inflation.

Mr. Powell outlined two possible strategies. One would be to quickly raise interest rates well above the 4.5% to 5% level that many officials thought in September would be appropriate. Another would be to “go slower and feel your way a little bit to what we think is the right level” and “to hold on longer at a high level and not loosen policy too early.”

Mr. Powell indicated he and his colleagues were more comfortable with the second strategy because they don’t want to cause unnecessary damage to the economy. “We do not want to over tighten because cutting rates is not something we want to do soon,” he said. “So that’s why we’re slowing down and going to find our way to what the right level is.”

Write to Nick Timiraos at Nick.Timiraos@wsj.com

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