US hiring remains buoyant as employers create 223,000 jobs

US hiring remains buoyant as employers create 223,000 jobs

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

December job growth, while a decent gain, was the lowest monthly increase in two years. The unemployment rate fell to 3.5%, a 53-year low, the Labor Department said on Friday.

The monthly jobs report offered further signs that the labor market was beginning to cool. Last month’s gains were less than half of the 537,000 added in July. And average hourly wage growth slowed sharply, rising 4.6% in December from 12 months earlier, compared with a 4.8% year-on-year increase in November and a recent peak of 5.6% in March.

Slower paycheck growth will come as a relief to Fed officials, who see wage growth as a driver of future inflation.

Job growth over the past month capped a second straight year of resilient hiring as the nation recaptured all 22 million jobs lost to the COVID-19 pandemic. But the rapid hiring and the hefty salary increases that came with it likely contributed to a rise in prices that sent inflation to its highest level in 40 years.

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The picture for 2023 is much bleaker. Many economists are forecasting a recession in the second half of the year, a consequence of the Fed’s sharp hikes in interest rates. Central bank officials have forecast that these increases will cause the unemployment rate to hit 4.6% by the end of the year.

Although the Fed’s higher interest rates have begun to cool inflation from its summer peak, they have also made mortgages, auto loans and other borrowing more expensive for consumers and businesses.

For now, at least, the labor market is showing surprising resilience amid higher interest rates across the economy. Employers added 4.6 million jobs in 2022, up from 6.7 million in 2021. All of those hirings were part of a strong recovery from the 2020 pandemic recession.

In June, annual inflation hit a 40-year high of 9.1%, before slowing to 7.1% in November. Last year, the Fed raised interest rates seven times in an aggressive attempt to bring inflation back to its 2% target.

Fed Chair Jerome Powell has stressed in recent comments that sustained strong job growth, which can force employers to raise wages to find and retain workers, can perpetuate inflation: companies often hike prices to match their higher ones pass labor costs on to their customers. And higher wages usually lead to more consumer spending, which can keep inflation high.

That’s why Powell and other Fed officials have signaled their belief that unemployment needs to rise from its current low levels to bring inflation under control.

Fed officials have forecast that they will raise their short-term interest rate to about 5.1% this year, the highest level in more than 15 years. If hiring and inflation remain strong, the Fed may need to raise interest rates even further.

Technology companies have been laying off employees for months, and some, including Amazon, said they had hired too many employees during the pandemic. Amazon has increased its layoffs to 18,000 from an earlier announcement of 10,000. Cloud software provider Salesforce says it will lay off 10% of its workforce. And Facebook’s parent company Meta says it will lose 11,000.

Smaller technology companies are also affected. Stitch Fix, the fast fashion retailer, announced Thursday that it will lay off 20% of its workforce. DoorDash has announced that it will cut 1,250 jobs.

But outside of the high-tech sector, it is primarily smaller companies that are still hiring. According to payroll service provider ADP, companies with more than 500 employees cut jobs in December, while companies below that threshold hired many more employees. And an analysis by investment bank Jefferies showed that small businesses post a historically high proportion of job openings.

The Fed is concerned about rapid wage growth, which it sees as a reason inflation is likely to remain high. Average hourly wages are up about 5%, one of the highest levels in decades.

Economists expect growth to have been a solid annual rate of around 2.5% for the last three months of last year. But there are signs of a slowdown, and most analysts expect weaker growth in the current first quarter of 2023.

Consumers barely increased spending in November, dampened by modest Christmas shopping. And manufacturing activity contracted in December for the second straight month, with both orders and output contracting.

And the housing market, a key driver of the economy, has been hit hard by the Fed’s rate hikes, which have more than doubled mortgage rates over the past year. Home sales have plummeted over the past 10 months.

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