The unemployment rate edged down to match a half-century low of 3.5%
Employers in many sectors were still struggling late in the year to fill open positions, pushing up wages.
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%.
Nonfarm payrolls, monthly change source: Labor Department*2019 average. Note: Seasonally adjusted. 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 an outright contraction,” said Joe Brusuelas, chief
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 pre-pandemic 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.
