The economy gained 223,000 jobs in December, the Bureau of Labor Statistics reported Friday morning, a strong performance that shows commerce is holding up despite a number of headwinds.
The unemployment rate fell to 3.5%, tied for the lowest rate since the late 1960s.
Friday’s report is being closely scrutinized, as it is the last of 2022 and comes just a few weeks before the Federal Reserve must make another decision on raising interest rates. A stronger jobs report shows that rate hikes are not damaging the overall economy and could cause the Fed to lean toward a more aggressive hike to start the new year.
“Labor market continues to remain tight, wages continue to increase but still lagging inflation … bottom line is if things remain the same, this will give the Fed the wherewithal to continue on its path of raising the Fed funds rate,” Brian Marks, executive director of the University of New Haven’s Entrepreneurship and Innovation Program, told the Washington Examiner shortly after the report’s release.
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The reading follows several months of strong and overperforming job gains, which has been key positive economic data that President Joe Biden has touted even as historic inflation cuts deeply into the paychecks of people across the country. This newest report adds to that narrative. Biden touted the news on Friday.
“The first two years of my presidency — 2021 and 2022 — were the two strongest years of job growth on record. And in December, the unemployment rate fell to its lowest level in the last 50 years,” the president said.
Labor force participation, the share of adults working or looking for work, rose very slightly to 62.3%. Participation and overall employment rates, though, have still not recovered from the hits they took in the pandemic.
Wage growth remained strong — average hourly earnings have grown 4.6% over the past year. Those gains have been undercut by inflation, though, meaning that workers have been losing purchasing power.
Additionally, the “U6” unemployment rate, which is a broader measure of work in America that includes underemployment, such as people who are working part time because they can’t find a full-time job, fell from 6.7% to 6.5%, which is the lowest level since records on the statistic began to be kept nearly three decades ago.
The resilient job market has been a sign that the economy is not in recession, even though gross domestic product contracted in the first two quarters of last year — a situation commonly used to define a recession.
GDP grew at a 3.2% annual rate in the third quarter and is thought to have grown at a similar rate in the fourth quarter.
Still, most economists expect a recession to be declared sometime in the coming 12 months, with more than two-thirds of the economists at major financial institutions surveyed by the Wall Street Journal predicting a coming recession due to the Fed’s aggressive rate hiking.
After four consecutive meetings of historic 75 basis point rate hikes, the Fed down throttled a bit during its December meeting and opted for a 50 basis point hike (still double the typical amount by which rates are incrementally increased).
Fed officials have recognized the need for the labor market to take a bit of a hit in order for inflation to be restrained, and Fed Chairman Jerome Powell has said that job openings “need” to come down.
Just as the strong job numbers in December are tricky news for the Fed, other employment indicators have also remained robust despite the monetary policy headwinds.
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Last week, jobless claims fell to the lowest level in months, with applications for unemployment benefits falling by 19,000 to 204,000, the Labor Department reported Thursday. Also reported this week, job openings in November decreased by less than most economists had expected.
