Hiring slowed modestly in December as employers added 223,000 jobs to close out an otherwise booming year, possibly foreshadowing the deeper pullback and recession that many economists expect in 2023.
The unemployment rate fell from 3.7% to 3.5%, the Labor Department said Friday.
Economists surveyed by Bloomberg had estimated that 200,000 jobs were added last month.
For all of 2022, the U.S. added 4.5 million jobs, second most behind the 6.7 million gained the previous year, as the nation continued to heal from record job losses in the early days of the COVID-19 pandemic.
Job gains for October and November were revised down by a total of 28,000. October’s was revised from 284,000 to 263,000 and November’s, from 263,000 to 256,000, painting a slightly weaker portrait of job growth in the fall.
“We think substantially slower payroll growth is coming very soon,” Ian Shepherdson, chief economist of Pantheon Macroeconomics wrote in a note to clients.
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How much have wages risen in 2022?
The report featured some good news for a Federal Reserve determined to lower inflation. Last month, average hourly wages rose 9 cents to $32.82, pushing down the annual increase to a still elevated 4.6% from a downwardly revised 4.8% the previous month. The Fed is looking for a pullback in pay increases to beat back inflation that hit a 40-year high last year and pause its aggressive campaign of interest rate hikes that could tip the economy into recession.
What is the labor force participation rate?
Also, the share of adults working or looking for a job edged up to 62.2% from 62.1%, still leaving it well below the pre-pandemic level of 63.4%. A larger labor supply puts downward pressure on wages as employers don’t need to compete as fervently for job candidates.
Industries that are hiring
Leisure and hospitality, the industry hit hardest by the pandemic, led the job gains with 67,000. Health care added 55,000 jobs; construction, 28,000; and social assistance, 20,000.
Gains in other sectors were weak, with manufacturing adding 8,000 jobs; retail, 9,000; and transportation and warehousing, 5,000.
Temporary help services shed 35,000 jobs, its fifth straight monthly decline. That could foreshadow deeper job losses across the broader economy in the months ahead since employers often cut temporary workers before laying off permanent staffers.
Another hint of a coming slowdown: Americans worked an average 34.3 hours last month, marking the second straight monthly decline and the lowest level since April 2020. Employers typically work existing employees fewer hours before cutting jobs and hiring.
Have all jobs lost to COVID been recovered?
By August, the economy recovered all 22 million wiped out in the health crisis. But payrolls are still a couple of million jobs shy of where they would be if the pandemic hadn’t happened, based on population growth. Leisure and hospitality, the sector hit hardest by the crisis, remains nearly 1 million jobs below its pre-COVID level.
Monthly job growth slowed through 2022, from a blockbuster pace of 457,000 in the first seven months of the year to a still solid 260,000 since July. Hiring has softened since all 22 million lost jobs were recovered. Also, high inflation – and the Fed’s aggressive interest rate hikes to tame it – have started damping economic activity and the labor market.
Dow Jones, S&P 500, Nasdaq Composite updates
Stocks opened higher after the jobs report was released, likely on the news of softer wage increases that could mean fewer Fed rate hikes. The Dow Jones Industrial Average jumped by nearly 400 points, or 1.2%. But it started to lose steam and was up just 0.3% as of 9:47 a.m. ET.
The S&P 500 and Nasdaq Composite moved in similar directions.
The Dow shed nearly 9% of its value in 2022 compared to the S&P and Nasdaq Composite which lost 19% and 33%, respectively.
U.S. economy recession in 2023?
Most economists expect the U.S. to slip into a mild recession this year as the Fed’s rate increases take a growing toll on spending and growth. Such forecasts have further weakened consumer and business confidence.
Yet despite the hurdles, the labor market has been remarkably resilient, repeatedly defying forecasts for a more dramatic slowdown. To cope with soaring inflation, many households have drawn from the $2.6 trillion in additional savings they amassed from government stimulus checks and reduced spending during COVID.
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Is there still a labor shortage?
And since millions of Americans retired early or took a hiatus during COVID, the resulting labor shortages left employers struggling to find workers and reluctant to announce layoffs despite the dire forecasts. Initial jobless claims, a gauge of layoffs, are still low, though Amazon announced 18,000 job cuts on Thursday, the latest in a huge wave of tech company layoffs this year.
Many continue to hire despite the cloud of uncertainty over the economy.
Judy Briggs, owner of a 1-800-GOT-JUNK franchise in Hopkinton, Massachusetts, says sales increased 3% in 2022, down from about 15% the past several years, and she expects a similar modest gain this year. The steep housing downturn means fewer people are moving, softening demand for a service that hauls away items such as old furniture, appliances, tires.
But she says, “People (including renters) are still moving and still getting rid of junk,” she says.
Also, in light of the labor shortages, she wants to have enough staff to handle employee turnover and COVID-related absences.
She plans to add about five workers to her permanent staff of 35, the same as last year.
“It’s hard to find employees these days,” she says.
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ADP jobs report
Some other labor market measures showed that solid hiring continued in December.
Data from payroll processing company ADP indicated that employers added 253,000 jobs last month, exceeding Dow Jones estimates of 153,000. ADP’s data also showed that wage growth is slowing for people who stay at their jobs. The median annual pay increase for these workers fell to 7.3% in December from 7.6% in November.