The U.S. economy added 223,000 jobs in December, according to government data, and the unemployment rate dipped down to 3.5 percent, where it was just prior to the start of the Covid pandemic in 2020. There’s some good news and bad news in that data, say CEI analysis.
Ryan Young, CEI Senior Economist
“The labor force grew by 4.5 million people in 2022, more than tripling overall population growth of 1.25 million. That means labor force growth is strong, because it’s not merely keeping up with population growth, it’s tripling it. That’s a big deal. The fact that this happened despite high inflation all year speaks well of the economy’s overall strength.
“This makes sense with the overall story of the post-COVID economy. A mostly healthy economy shut down for the pandemic, then opened up again. Most of the lingering problems come from policymakers overreacting: policymakers overdid their stimulus efforts, and that accounts for most of the inflation we’re dealing with today.
“The overall economy remains mostly healthy, just as it was before COVID. That should embolden the Fed to continue rolling back its earlier excesses. It has been doing the right thing since last March, but there is still more to do.”
Sean Higgins, CEI Research Fellow
“The Labor Department’s report Friday that the unemployment rate declined to 3.5 percent, adding 223,000 jobs in December, is nevertheless evidence that the economy is cooling, albeit at a very slow rate. To compare, November’s job gains were 263,000 and at the beginning of 2022 the monthly gains averaged around 400,000.
“Overall demand for workers remains strong, with many employers increasing wages for hourly workers in December to entice workers in or merely keep them at the company. But not all sectors are doing well. Employers in retail, manufacturing and leisure and hospitality are hiring at lower rates than at the beginning of 2022, and some sectors, like tech, are seeing layoffs. The labor force participation rate slightly ticked upwards to 62.3 percent, but the average work week slid down to 34.3 hours, down a tenth of a point. That means employers are cutting back on the hours as a way to keep payroll costs down.
“The glimmer of good news is that an unemployment rate of 3.5 percent matches its lowest level in the last half-century. What we’re seeing is a strong economy that is only getting only marginally weaker.”
Joshua Bandoch, CEI Research Fellow
“The final BLS data from 2022 offers some modest good news. The labor force participation rate ended the year 2022 at 62.3 percent, up 0.3 percentage points from December 2021. That means that more than half a million Americans are either employed or looking for work who weren’t this time last year. That’s an important, if small, improvement. The rate still remains well below the all-time high of 67.3 percent, achieved in January 2000.
“With many economists concerned that 2023 will offer little if any economic growth, there’s reason to be pessimistic that we’ll see further improvements in labor force participation and even reason to think we’ll see it decline. If we have a recession (the chances of which a recent survey of economists places at 70 percent), the decline could even be significant, further discouraging people to return to the workforce.”