December jobs report shows signs of a slowdown but labor market remains tight

The year 2022 has turned out to be one of the best years for job growth in modern U.S. history. December’s jobs report released Friday by the Bureau of Labor Statistics (BLS) showed another month of the economy beating job growth expectations, but did signal a slowdown in that growth.

The U.S. economy added 223,000 jobs for the month, compared with around 200,000 expected by economists. It was the slowest monthly job growth of the year after falling from November’s 256,000 jobs added.

However, the unemployment rate continued to point to a tight labor market. Unemployment dropped again in December to 3.5%, down from November’s revised 3.6% and matching a 5-decade low. Unemployment hasn’t been lower than 3.5% since 1969.

For all of 2022, employment rose by 4.5 million jobs, the BLS reports. That’s an average monthly gain of 375,000. The annual data is only topped by 2021’s pandemic rebound, which saw a total increase of 6.7 million jobs, an average monthly gain of 562,000.

After a stronger-than-expected jobs and unemployment report, the Federal Reserve will be laser focused on next week’s consumer inflation numbers that come out Thursday. The Fed has cited the tight labor market as a bit of a hindrance in bringing down inflation, noting signs of softening would signal tightening monetary policy is working.

That said, the latest jobs numbers continue to reject growing consensus that the U.S. is heading toward a recession. That narrative is bolstered by increasing layoffs, especially in the tech sector. This week, Amazon and Salesforce announced job cuts of 18,000 and 8,000, respectively.

As the Fed continues to raise its interest rate in the battle to bring down inflation, the committee insists it has no plans to cut rates in 2023, despite markets pricing it in. In fact, minutes from the latest Fed meeting show officials are worried the market could undermine the Fed’s efforts to bring down prices through “an unwarranted easing in financial conditions” driven by misperceptions about the Fed’s plans.