Jobs report bolsters Fed’s scenario for ‘soft landing’

Cooler hiring, easing of pay gains to close out 2022 may help to fight inflation

WASHINGTON — America’s employers added a solid 223,000 jobs in December, evidence that the economy remains healthy even as the Federal Reserve is rapidly raising interest rates to try to slow economic growth and the pace of hiring.

With companies continuing to add jobs across the economy, the unemployment rate fell from 3.6% to 3.5%, matching a 53-year low, the Labor Department said Friday.

All told, the December jobs report suggested that the labor market may be cooling in a way that could aid the Fed’s fight against high inflation. Last month’s gain was the smallest in two years, and it extended a hiring slowdown for most of 2022. What’s more, average hourly pay growth eased in December to its slowest pace in 16 months. That could reduce pressure on employers to raise prices to offset their higher labor costs.

Average hourly wage growth was up 4.6% in December from 12 months earlier, compared with a 4.8% year-over-year increase in November and a recent peak of 5.6% in March.

“If these trends continue, we can feel more and more confident that the strength of this labor market is sustainable,” said Nick Bunker, head of economic research at the online job site Indeed’s Hiring Lab. “The outlook for next year is uncertain, but many signs point toward a soft landing,” rather than a feared recession.

Last month’s job gains capped a second straight year of robust hiring during which the nation regained all 22 million jobs it lost to the COVID-19 pandemic. Yet the rapid hiring and the hefty pay raises that accompanied it likely contributed to a spike in prices that catapulted inflation to its highest level in 40 years.

The picture for 2023 is much cloudier. Many economists foresee a recession in the second half of the year, a consequence of the Fed’s succession of sharp rate hikes. The central bank’s officials have projected that those increases will cause the unemployment rate to reach 4.6% by year’s end.

Though the Fed’s higher rates have begun to cool inflation from its summertime peak, they have also made mortgages, auto loans and other consumer and business borrowing more expensive.

For now, at least, the job market is showing surprising resilience in the face of higher interest rates across the economy. Employers added 4.5 million jobs in 2022, on top of 6.7 million in 2021. Those were the biggest and second-biggest years of job gains since records began in 1940. The hiring surge was part of a powerful rebound from the pandemic recession of 2020.

The largest job gains last month were in health care, which added 74,000. Leisure and hospitality, a category includes restaurants, hotels and entertainment, gained nearly as much: 67,000.

Retailers added 9,000, transportation and warehousing companies nearly 5,000. Construction companies added 28,000 — a surprisingly large gain considering that higher borrowing rates are dragging down residential and commercial real estate.