The Economy Added 223,000 Jobs in December, Unemployment Down to 3.5%
Only a few weeks before the Federal Reserve must decide whether to raise interest rates again. Will the Fed lean toward a more aggressive boost to begin the new year if job figures continue to improve, implying that rate hikes are not harmful to the overall economy?
According to a report that the Bureau of Labor Statistics released on Friday morning, the economy added 223,000 jobs in December. This remarkable performance demonstrates that commerce is holding up despite several challenges.
The unemployment rate is now at 3.5%, tied to the lowest level seen since the late 1960s.
It is the final report of 2022, and it comes only a few weeks before the Federal Reserve must decide whether to raise interest rates again. As a result, this report is receiving a great deal of attention. Higher jobs data suggest that rate rises are not detrimental to the broader economy, and it might lead the Fed to tilt toward a more aggressive raise to start the new year.
The labor market is still very tight, and wage growth is still happening, but it is not keeping up with inflation. The bottom line is that if things stay the same, this will provide the Federal Reserve the motivation to continue on its path of hiking the Fed funds rate.
The result comes after a number of months of robust and overperforming job increases, which have been crucial pieces of encouraging economic statistics that President Joe Biden has highlighted, despite the fact that unprecedented inflation is cutting heavily into the wages of people all throughout the nation. The most recent report adds fresh information to that story. On Friday, Biden made a big deal out of the news.
"The first two years of my presidency, 2021 and 2022, were also the two greatest years in terms of employment growth when compared to all previous records. And during the month of December, the jobless rate reached a new all-time low in the prior half-century, "the statement of the President
The percentage of people working or seeking employment increased very little, reaching 62.3% of the total adult population. Despite this, participation and total employment rates have not yet fully recovered from the blows they sustained during the epidemic.
The growth rate in wages has remained stable; during the last year, average hourly earnings have increased by 4.6%. However, these advancements have been hampered by inflation, which has resulted in a decline in employees' buying power.
The unemployment rate, which is a broader measure of work in the United States that includes underemployment, such as people who are working part time because they can't find a job that allows them to work full time, 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. Underemployment refers to people who are working part time because they can't find a job that allows them to work full time.
Even though the gross domestic product declined in the first two quarters of last year — a circumstance typically used to characterize a recession — the strong job market has been a clue that the economy is not in recession. This is the case despite the economy not being in recession.
It is estimated that the pace of GDP expansion in the fourth quarter was comparable to the rate of growth seen in the third quarter, which was 3.2% annually.
However, the majority of economists believe that a recession will be declared within the next year at some point. In fact, more than two-thirds of the economists surveyed by the Wall Street Journal from major financial institutions believe that a recession will occur in the near future due to the Fed's aggressive rate hike.
The Federal Reserve raised interest rates by a record total of 75 basis points at each of its previous four sessions but during its meeting in December, the Fed chose to boost rates by just 50 basis points (still double the typical amount by which rates are incrementally increased).
Fed officials have acknowledged the need for the labor market to take a bit of a blow to contain inflation, and Fed Chairman Jerome Powell has said that job vacancies "need" to come down. This is in response to Powell's statement that job openings "need" to come down.
Other employment indicators have also remained solid despite the headwinds caused by monetary policy. This is problematic for the Fed because the robust job statistics in December are problematic for the Fed.
The labor market data for December showed that employment was only marginally higher and that pay rises were less than projected, indicating progress despite the efforts of the Federal Reserve to raise interest rates to manage inflation. The data also showed that pay rises were less than projected. On Friday, when the research contents were made public, the stock market in the United States increased.
The Dow Jones Industrial Average reached a new high at 10:30 a.m., having gained 402 points, which is the same as a gain of 1.22%, even though it was still below its earlier highs for the day. Although the S&P 500 index increased by 1.07% and the Nasdaq Composite increased by 0.81%, the market was driven down by Tesla shares, which plunged by more than 3.5% after the company lowered prices on select vehicles in China. Despite this, the market was able to gain ground overall.
The publication of ADP private payroll data that was stronger than expected fueled concerns that the Federal Reserve would have to continue to boost rates and maintain them at high levels, fueling worries of a recession in the United States. As a result, the Dow Jones Industrial Average dropped more than 300 points on Thursday.
While the Federal Reserve has been working to alleviate the effects of a tight labor market, which has resulted in persistently high inflation and led to a slowdown in employment growth in recent months, hiring has continued to be a significant factor in the economy.
After today's data, investors should anticipate higher rates for a longer period of time, according to Ron Temple, Chief Market Strategist at Lazard. He stated this expectation in a letter. "With over 1.8 unfilled positions for every jobless individual," It is impossible for the Federal Reserve to have complete confidence that inflation will return to its objective of 2% as long as the labor market continues to be as tight as it is.