December Jobs Growth Tops Expectations

The U.S. economy added 223,000 jobs in December, exceeding estimates for a 200,000 gain, although the smallest monthly increase in two years suggests the Federal Reserve is making headway in its battle to slow inflation. The unemployment rate unexpectedly edged down to 3.5%, matching the lows from June and September, while wage growth slowed.

Average hourly earnings rose 0.3% from a month earlier, decelerating from 0.4% in November. On an annual basis, they were up 4.6%, compared with a revised 4.8% gain the previous month. The average workweek for private-sector workers edged down to 34.3 hours, down from 34.4, while the labor force participation rate was little changed at 62.3% and the employment-to-population ratio rose 0.2 percentage points to 60.1%.

The report from the Bureau of Labor Statistics (BLS) sheds light on the Fed’s efforts to cool the economy by raising interest rates, pointing to a resilient job market even amid growing expectations that the U.S., like much of the world, appears poised to slip into recession. Fed officials fanned out across the nation yesterday to make clear in speeches and public appearances that the central bank’s main task is to arrest the fastest increase in consumer prices in four decades.

The Federal Open Market Committee (FOMC) is scheduled to hold its next meeting on Jan. 31-Feb. 1, and policymakers are expected to raise rates by an additional 25 basis points to a range of 4.5 to 4.75%, according to the CME Group’s FedWatch Tool. All told, signs point to three rate hikes early this year, to a likely terminal rate between 5.25 and 5.5%, as the Fed battles to curtail job growth without throwing the economy into a tailspin.

Contrarians downplay the likelihood of a recession.

“We strongly believe inflation has topped, and one of our highest convictions is that interest rates are headed lower,” Brett Ewing, chief market strategist at Tallahassee’s First Franklin Financial Services, said in an interview. Peak yields on U.S. Treasurys and cooling inflation are “tailwinds for the economy and markets in 2023.”

Gains by Sector

Notable job gains came in leisure and hospitality, health care, social assistance, and construction. Leisure and hospitality added 67,000 positions, led by a 26,000 increase in employment at food services and drinking places, as the industry rebounds from the pandemic. Total employment in the sector remains 5.5% below its pre-pandemic level in February of 2020.

Health care added 55,000 jobs, led by a 30,000 gain in employment at ambulatory care services and a 16,000 increase at hospitals. Job growth has averaged 49,000 per month in 2022, well above the average monthly gain of 9,000 in 2021.

Employment in construction and social assistance edged up by 28,000 and 20,000, respectively. Other sectors recording slight gains included manufacturing, retail trade, and transportation and warehousing. Government employment was little changed with a gain of only 3,000, while professional and business services recorded a slight decline of 6,000. Other industries, including wholesale trade, information, and financial activities, showed little change.