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December Job Gains Cap Historic Year

Unemployment fell to 3.5 percent

A maid in a hotel room putting a sheet on a bed.

U.S. employers added 223,000 new jobs in December, better than expected and closing out 2022 on a high note, according to the latest employment report from the U.S. Bureau of Labor Statistics (BLS). Hiring cooled slightly last month, but job gains for the year—4.5 million—represent the second highest total on record (after 2021), foiling the Federal Reserve's efforts to combat inflation by slowing economic growth with higher interest rates.

The unemployment rate dropped to 3.5 percent despite an increase in layoff announcements, and wage gains, although slowing, continue to rise.

"After months of reports that sent mixed signals, the December jobs report finally has a resoundingly consistent message: The labor market was robust and resilient in 2022," said Julia Pollak, chief economist at ZipRecruiter.

"Today's report was full of good news," said Nick Bunker, economic research director for North America at the Indeed Hiring Lab. "Employers continue to add jobs at a rapid pace, and more workers are reporting they have jobs. Job growth diminished but remains well above the pace needed to bring workers back into the labor market. Wage growth continues to be robust, but there are some signs of moderation. If these trends continue, we can feel more and more confident that the strength of this labor market is sustainable."

Glassdoor Chief Economist Aaron Terrazas added that the labor market in 2022 managed to defy gravity despite so many high-profile headwinds. "Neither high interest rates nor high inflation seemed to be sufficient to reverse the combination of pent-up consumer demand and longer-term labor supply challenges," he said.

Richard Wahlquist, president and CEO of American Staffing Association in Alexandria, Va., said that the labor market's extraordinary resilience comes despite repeated efforts by the Federal Reserve to slow the economy.

"With inflation showing signs of cooling, policymakers should be focusing on promoting job creation and upskilling rather than attempting to force increases in the unemployment rate," he said. "Destroying jobs will hurt people, hurt businesses, increase dependency on government payouts and constrain economic growth."

Terrazas said that while the positive employment picture makes recent fears about a possible looming recession seem less threatening, the real concerns are longer term and structural, related to population decline. "When it comes to the labor market, we should perhaps be a little bit less scared about 2023 and a little bit more worried about the years that will follow it," he said.

Industry Breakdown

Payrolls grew most in leisure and hospitality (67,000 new jobs), health care (55,000) and construction (28,000), despite the sharp decline in home sales caused by higher mortgage rates.

"As was the case in October and November, leisure and hospitality once again saw the biggest gains in December," said Amy Glaser, senior vice president at Adecco. "This is tied to both an influx of seasonal and permanent demand for businesses that saw some of the most severe job loss during the pandemic. The leisure and hospitality industry still has a way to go to return to pre-pandemic employment levels, but this continued uptick is a positive sign that the industry is rebounding." 

Employment in leisure and hospitality remains below its pre-pandemic February 2020 level by 932,000 jobs. Employment declined slightly among professional and business services (by 6,000 jobs), in the media and tech-heavy information sector (by 5,000 jobs), and among warehouse and storage workers (by 3,000 jobs).

"In all industries, employers must keep an eye on their wages and flexible work offerings to ensure they don't lose valuable employees," said Becky Frankiewicz, president and chief commercial officer at ManpowerGroup.

She said that the medical field is experiencing a mass exodus, with 82,000 quits in health care and social assistance in November 2022, while "registered nurse" topped the list of ManpowerGroup's top 25 occupations last month.

Unemployment Falls

The unemployment rate unexpectedly fell to 3.5 percent after remaining in a record-low zone between 3.5 percent and 3.7 percent since March 2022. The number of unemployed people decreased to 5.7 million.

A more encompassing measure of unemployment that includes underemployed and discouraged workers also declined, falling to 6.5 percent, its lowest reading since 1994.

The drop in the unemployment rate came as the labor force participation rate edged higher to 62.3 percent in December from 62.2 percent in November. That's still below where it was pre-pandemic, one indicator that employers can continue to expect a very tight talent market in 2023.

"The longer-term decline in labor force participation has overwhelmingly been driven by older workers who saw their labor force participation drop sharply during the earliest months of the pandemic and has never fully recovered," Terrazas said.

Bunker said that the share of workers ages 25 to 54 with a job jumped by 0.4 percentage points in December, rising to 80.1 percent. "This core measure of labor market strength has been lagging in recent months, so a return to growth is very encouraging. Unemployed workers continue to find jobs at an elevated rate, with the job-finding rate for these workers well above its average before the pandemic," he said. 

Wages Cool

December's wage data could provide some encouragement that the Fed's efforts are making their intended impact. Wage growth slowed from previous months, but average hourly earnings still rose 0.3 percent for the month and 4.6 percent from a year ago.

"The data on wage growth is likely to make the Fed smile," Pollak said. "Last month's report showed a large spike in wage growth and set off investor fears of an impending wage-price spiral, but the December report suggests the November reading was an anomaly."


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