The U.S. economy added 223k jobs in December, slightly above the consensus forecast for 200k. Revisions to the two prior months were negative, subtracting 28k from the previously reported figures. For the year, non-farm payrolls showed the U.S. economy added 4.5 million jobs and ended the year with employment 0.8% above pre-pandemic levels.
Employment gains on the service-side (+180k) were largely concentrated in education & health care (+78k), leisure & hospitality (+67k), and other services (+14k). Professional & business services (-6k) and information services (-5k) both shed jobs on the month, though the former was largely due to another sharp decline in temporary help services (-35k). Goods producing industries (+40k) had another solid month, with gains concentrated in construction (+28k). The manufacturing sector added 8k jobs.
In the household survey, civilian employment recorded a sizeable gain of 717k, while the labor force grew by a smaller (but still robust) 439k. As a result, the unemployment rate ticked lower by 0.1 percentage points (pp) to 3.5% –returning to its 50-year low. The participation rate edged higher by 0.1pp, rising to 62.3%, and ending the year 0.1pp above where it started.
Average hourly earnings rose 0.3% month-on-month (m/m) – a deceleration from the 0.4% m/m gain recorded in November. Compared to December 2021, wage growth was up 4.6% (down from 4.8% y/y in November). Aggregate hours worked rose by 0.2% m/m.
Key Implications
After oscillating in a very narrow range of 256k-269k in recent months, the pace of hiring took a modest step lower in December. Based on a three-month moving average, employment growth has slowed by over 125k jobs per-month since the Fed began rapidly tightening monetary policy last May but continues to run at a pace well above population growth.
Average hourly earnings cooled in December, but at 4.6% y/y, remains far too hot. Wage growth has been identified by the Federal Reserve as the primary source fueling higher inflation across many of the labor-intensive service sectors. Labor demand has started to ease from last year’s highs, but there are still 1.7 job openings for every person actively looking for work. With labor force growth showing little improvement this past year, labor demand will need to slow considerably more to restore balance in the labor market cool wage pressures.
While a New Year tends to usher in change, the Fed’s commitment to restoring price stability remains steadfast. With at least another 50 basis points of tightening to come over the first half of this year and the FOMC expected to keep rates elevated through much of 2023, a broader slowdown in economic activity appears likely over the coming months.
