US employers added 223,000 jobs in December, proof that the economy remains healthy even as the US Federal Reserve (Fed) is rapidly raising interest rates in an attempt to slow economic growth and the pace of hiring.
As businesses continue to add jobs across the economy, the unemployment rate has fallen from 3.6% to 3.5%, a 53-year low, the department said on Friday. work.
All told, the December jobs report suggests the labor market is cooling in a way that could help the Fed fight high inflation. Last month’s gain was the smallest in two years, and it extended the slowdown in hiring seen through most of 2022.
In addition, growth in average hourly earnings slowed in December to its slowest pace in 16 months. This slowdown could reduce the pressure on employers to raise prices to offset their rising labor costs. Average hourly wage growth was 4.6% in December from 12 months earlier, compared to a 4.8% year-over-year increase in November and the recent high of 5 .6% of March.
“If these trends continue, we can be increasingly confident that the strength of this job market is sustainable,” said Nick Bunker, head of economics research for job site Indeed Hiring Lab. “The outlook for next year is uncertain, but many signs point to a soft landing,” rather than a feared recession.
Last month’s job growth capped a second straight year of robust hiring in which the nation regained the 22 million jobs it lost to the COVID-19 pandemic. However, rapid hiring and the large wage increases that accompanied it likely contributed to a price spike that catapulted inflation to its highest level in 40 years.
darker horizons
The picture for 2023 is much cloudier. Many economists are predicting a recession in the second half, as a result of a succession of sharp rate hikes by the Fed. Central bank officials projected that these increases would drive the unemployment rate to 4.6% by the end of the year.
For now, at least, the labor market is showing surprising resilience in the face of rising interest rates across the economy. Employers added 4.5 million jobs in 2022, on top of 6.7 million in 2021. All of those hirings were part of a powerful rebound from the pandemic recession of 2020.
In June, annual inflation hit 9.1%, its highest level in 40 years, and slowed to 7.1% in November. Last year, in an aggressive campaign to lower inflation towards its 2% target, the Fed raised its key interest rate seven times.
Fed Chairman Jerome Powell recently pointed out in remarks that consistently high job growth, which may force employers to raise wages to find and keep workers, can perpetuate inflation: companies often raise prices to pass on their increased labor costs to customers. And a higher salary generally fuels consumer spending, which can keep inflation high.
For this reason, Mr. Powell and other Fed officials have expressed their belief that for inflation to be brought under control, unemployment will have to rise from its current low level.