Key Points:

  • The US labor market ended 2022 on a high note with employers adding 223,000 jobs in December as the unemployment rate declined to 3.5%.
  • A rise in the employment rate for prime-age workers was a particularly encouraging sign after a recent streak of disappointment.
  • Wages grew briskly and continued to moderate, a sign the strength of this labor market is sustainable. 

If you’re holding out hope for a soft landing, today’s report was full of good news. Employers continue to add jobs at a rapid pace and more workers are reporting they have jobs. Wage growth continues to be robust but there are some signs of moderation. All of this is happening with unemployment at 3.5%. If these trends continue, we can feel more and more confident that the strength of this labor market is sustainable. The outlook for next year is uncertain, but many signs point toward a soft landing.

After disappointing for much of 2022, data on employment from the survey of households is at last looking up. The share of workers ages 25 to 54 with a job jumped by 0.4 percentage points in December, rising to 80.1%. This core measure of labor market strength has been lagging in recent months, so a return to growth is very encouraging. Unemployed workers continue to find jobs at an elevated rate, with the job-finding rate for these workers well above its average before the pandemic.  

Data from the establishment survey was also promising. Job growth diminished but remains well above the pace needed to bring workers back into the labor market. Leisure and Hospitality continued to be a major source of job gains, at 30% of all growth in December. Continued progress in these industries that are still 5.5% below pre-pandemic employment could power the labor market moving forward. At the same time, wage growth does appear to be moderating after some signs in the last report of a reacceleration. Slowing but still robust wage gains indicate that the labor market is cooling in a sustainable manner.

2022 was a year of tumult in many ways but it was also a year of rapid job gains, low unemployment, and strong wage hikes. The hope is the strength of the US labor market can provide a solid foundation for the US economy in the year ahead.