Employment and wage gains softened in December, pointing to a cooler job market in 2023

Employers added 223,000 jobs in December, the lowest gain in two years, the Labor Department said Friday. Average hourly earnings increased 4.6% in December from a year earlier narrowest increment since mid-2021, and down from the March peak of 5.6%.

All told, employers added 4.5 million jobs in 2022, the second-best year in job creation after 2021, when the labor market rebounded from the Covid-19 shutdown and added 6.7 million jobs. Last year’s gains were concentrated in the first seven months of the year. latest data and a Wave of layoffs in technology and finance She points out that the job market, while still vibrant, is cooling.

“I expect the economy to slow significantly by June, and in the second half of the year we will see a greater pace of slowdown if not outright contraction,” said Joe Brosolas, chief economist at RSM US.

Friday report Send the markets gathering As investors expected, this will lead to the Federal Reserve slowing down the pace of interest rate increases. The next policy meeting of the central bank begins on January 31st. The Fed’s aggressive rate hikes aimed at combating inflation didn’t reduce hiring in 2022 significantly, but revisions to wage growth showed that recent gains were not as rapid as previously thought.

The Dow Jones Industrial Average rose 700.53 points, or 2.13%, on Friday. The S&P 500 rose 2.28% and the Nasdaq Composite advanced 2.56%. The benchmark 10-year Treasury yield fell 0.15 percentage point to 3.57%. Yields fall as bond prices rise.

The unemployment rate fell to 3.5% in December from 3.6% in November, matching readings from earlier in 2022 and just before the pandemic began as the lowest level in half a century. Federal Reserve officials said last month The unemployment rate will increase in 2023. Job gains for December were led by leisure, hospitality, healthcare and construction activities.

Historically low unemployment rates and strong employment, however, may mask some signs of weakness. The labor force participation rate, which measures the share of adults who are working or looking for work, rose slightly to 62.3% in December but is still well below pre-pandemic levels, one possible factor that could make it more difficult for employers to fill job vacancies. .

The average workweek has fallen over the past two years and in December reached 34.3 hours, the lowest level since early 2020.

Employment in temporary assistance services has fallen by 111,000 over the past five months, with job losses accelerating. It could be a sign that employers, facing a slowdown in demand, are reducing their employees’ hours and cutting back on temporary work to avoid layoffs.

The Labor Department report showed that the information-heavy technology sector lost 5,000 jobs in December. Retail saw a 9,000 increase in payrolls, after three consecutive months of decline.

Tech companies cut more jobs in 2022 than they did at the height of the COVID-19 pandemic, according to “Layoffs,” which tracks job cuts in the industry. Wednesday,

sales force company

She said she would cut 10% of her workforce, Getting rid of the hiring spree during the pandemic. The Wall Street Journal reported that

Amazon.com company

It will lay off 18,000 people, approximately 1.2% of the total workforce. Other companies, such as

Facebook

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Meta platforms company ,

DoorDash company

And

pop company ,

They also cut positions recently.

Companies operating in the interest rate sensitive housing and finance sectors, incl

Redfin corp.

And

Morgan Stanley

And

Goldman Sachs Group company ,

I also moved to cut staff.

Other data released this week points to a slowdown in the US economy. The Commerce Department said on Friday that new orders for manufactured goods fell by a seasonally adjusted 1.8% in November. Business surveys showed a contraction in economic activity in December, according to the Institute for Supply Management. Manufacturing companies posted a second consecutive contraction after 29 months of expansion, and services companies captured 30 straight months of growth in December.

Economists polled by The Wall Street Journal last fall saw a 63% chance of a recession in the US in 2023. They saw the unemployment rate rise to 4.7% by December 2023.

“Obviously we’ve been in a situation over the past few months where employment growth has been surprisingly solid and slowing very gradually,” said Andrew Hunter, chief US economist at Capital Economics. “There are some signs that we may be starting to see a sharper deterioration.”

Max Ruttersmann, a 61-year-old independent software developer, said he’s been pretty busy with consulting jobs for most of the pandemic. However, this changed during the summer when work suddenly dried up.

“I’m very curious to see if demand is high in the next few months or if — what I kind of expect is going to happen — there’s going to be a lot of shooting,” he said.

Despite some signs of slowing down, the job market remains exceptionally strong. On Wednesday, the Labor Department reported that there were 10.5 million job vacancies at the end of November, unchanged from October, far more than the number of unemployed Americans looking for work.

Some of these open positions are at Caleb Rice’s home renovation business in Calhoun, Tennessee, which has been consistently busy since the start of the pandemic. The small company raised wages and went to a four-day week in an effort to retain workers.

“If I can get three more dexterous hands now,” said Mr. Rice, “I shall be at ease.” “The way it goes is I’ll hire five, and two will turn up and out of those two he won’t deserve the opposite.”

Federal Reserve officials are trying to engineer a gradual cooling of the labor market by raising interest rates. Officials worry that a very strong labor market could lead to faster wage increases, which in turn could add pressure on inflation as companies raise prices to offset higher labor costs.

The central bank has raised interest rates at each of its past seven meetings and signaled more rate hikes this year to bring down inflation from its highest level in 40 years. It is likely that Fed officials will feel comfortable with a slowdown in wage gains, said economist Mr Brusuelas, which could prompt them to raise interest rates at a slower pace.

“We are closer to the peak in the Fed’s policy rate than we were before the report, and the Fed can strongly consider a further slowdown in the pace of its hikes,” he said. “We could reasonably see a 25 basis point hike versus a 50 basis point increase at the February 1st meeting.”

Write to David Harrison at [email protected]

Corrections and amplifications
A graphic in an earlier version of this article showing the change in nonfarm payrolls since the end of 2019 was incorrectly classified as change since January 2020. (Corrected Jan 6)