America’s employers added a solid 223,000 jobs in December, evidence that the economy remains healthy even as the Federal Reserve is rapidly raising interest rates to try to slow economic growth and the pace of hiring.
With companies continuing to add jobs across the economy, the unemployment rate fell from 3.6% to 3.5%, matching a 53-year low, the Labor Department said Friday.
All told, the December jobs report suggested that the labor market may be cooling in a way that could aid the Fed’s fight against high inflation. Last month’s gain was the smallest in two years, and it extended a hiring slowdown that began last year. And average hourly pay growth eased to its slowest pace in 16 months. That slowdown could reduce pressure on employers to raise prices to offset their higher labor costs.
Average wage growth was up 4.6% in December from 12 months earlier, compared with a recent peak of 5.6% in March. And in the past three months, job gains have averaged 247,000 — a decent pace but well below 2022’s monthly average of 375,000.
“If these trends continue, we can feel more and more confident that the strength of this labor market is sustainable,” said Nick Bunker, head of economic research at the online job site Indeed’s Hiring Lab. “The outlook for next year is uncertain, but many signs point toward a soft landing,” rather than a feared recession.
Traders on Wall Street appeared encouraged by the jobs report’s suggestion of milder pay growth. Stock prices rose sharply.
At the same time, December’s hiring figures don’t necessarily make the Fed’s path forward any clearer. The pace of job gains is still strong enough to keep lowering the unemployment rate, which, in turn, could keep pay growth high. Lisa Cook, a member of the Fed’s Board of Governors, said in a speech Friday that “inflation is far too high” and “of great concern,” though she also noted that wage growth “has indeed started to decelerate.”
Other recent data also point to a cooling economy: A measure of business activity in services, including finance, restaurants and transportation, contracted in December for the first time since 2020. A similar measure for manufacturing also shrank last month.
And a near-doubling of mortgage rates this year has sent home sales tumbling for 10 straight months.
Last month’s job gains capped a second straight year of robust hiring during which the nation regained all 22 million jobs it lost to the COVID-19 pandemic. Yet the rapid hiring and the hefty pay raises that accompanied it likely contributed to a spike in prices that catapulted inflation to its highest level in 40 years.
The picture for 2023 is much cloudier. Many economists foresee a recession in the second half of the year, a consequence of the Fed’s succession of sharp rate hikes. The central bank’s officials have projected that those increases will cause the unemployment rate to reach 4.6% by year’s end.
Though the Fed’s higher rates have begun to cool inflation from its summertime peak, they’ve also made mortgages, auto loans and other consumer and business borrowing more expensive.
For now at least, the pace of hiring is showing surprising resilience in the face of higher interest rates across the economy. One recent beneficiary is Ethan Edwards of Oklahoma City, who accepted a job offer last month after having looked around for nearly a year.
Edwards, 41, had taken his time because he was picky: He already had a job in local broadcasting, where he worked in marketing. But he wanted to find a position in a new industry in which he could work from home while avoiding a pay cut.
The strong job market eventually delivered. A recruiting firm, Aquent, connected Edwards to a digital marketing company, where he now leads strategic planning.
“So far,” he said, “every step of the way has been awesome.”
Among industries, the largest job gains last month were in health care, which added 74,000. Leisure and hospitality, a category includes restaurants, hotels, and entertainment, gained nearly as much: 67,000.
Retailers added 9,000, transportation and warehousing companies nearly 5,000. Construction companies added 28,000 — a surprisingly large gain considering that higher borrowing rates are dragging down residential and commercial real estate.
Many of those jobs were part-time positions. That trend suggests that as inflation began to accelerate, some people took on second jobs to help keep up with rising costs.
Bill Adams, chief economist at Comerica Bank, noted that the December jobs report showed that roughly 80% of people who found jobs last month took part-time work, which typically pays less than full-time jobs. That is likely one reason why wage growth has been slowing.