Payrolls rise by 223,000, unemployment rate falls to 3.5{3df20c542cc6b6b63f1c547f8fb389a9f235bb0504150b9df2ff264aa9a6c16c}

December’s jobs report, the last read on U.S. job growth in 2022, showed the labor market remained strong at the end of the year, even as the Federal Reserve raised interest rates to the highest level in 15 years.

Nonfarm payrolls increased by 223,000 in the last month of the year, according to the latest from the BLS published Friday. The unemployment rate in December fell to 3.5{3df20c542cc6b6b63f1c547f8fb389a9f235bb0504150b9df2ff264aa9a6c16c}, and on an unrounded basis, the unemployment rate came in at 3.468{3df20c542cc6b6b63f1c547f8fb389a9f235bb0504150b9df2ff264aa9a6c16c}, the lowest since 1969.

Economists had expected job gains to tally 202,000 and an unemployment rate of 3.7{3df20c542cc6b6b63f1c547f8fb389a9f235bb0504150b9df2ff264aa9a6c16c}.

In 2022, the U.S. economy added 4.5 million new jobs, an average monthly increase of 375,000.

Here are the balance of highlights from the release, compared to Wall Street estimates compiled by Bloomberg:

• Non-farm payrolls: +223,000 vs. +202,000 expected

• Unemployment rate: 3.5{3df20c542cc6b6b63f1c547f8fb389a9f235bb0504150b9df2ff264aa9a6c16c} vs. 3.7{3df20c542cc6b6b63f1c547f8fb389a9f235bb0504150b9df2ff264aa9a6c16c} expected

• Average hourly earnings, month-over-month: +0.3{3df20c542cc6b6b63f1c547f8fb389a9f235bb0504150b9df2ff264aa9a6c16c} vs. +0.4{3df20c542cc6b6b63f1c547f8fb389a9f235bb0504150b9df2ff264aa9a6c16c} expected

• Average hourly earnings, year-over-year: +4.6{3df20c542cc6b6b63f1c547f8fb389a9f235bb0504150b9df2ff264aa9a6c16c} vs. +5.0{3df20c542cc6b6b63f1c547f8fb389a9f235bb0504150b9df2ff264aa9a6c16c} expected

Headline employment gains have slowed in recent months, but hiring remains robust despite the Fed’s efforts to tamp down a strong labor market that has placed upward pressure on wages and contributed to stubborn inflation.

Average hourly earnings rose in at a slightly lower pace of 0.3{3df20c542cc6b6b63f1c547f8fb389a9f235bb0504150b9df2ff264aa9a6c16c}, down from a revised 0.4{3df20c542cc6b6b63f1c547f8fb389a9f235bb0504150b9df2ff264aa9a6c16c} increase in November. On an annual basis, wages rose 4.6{3df20c542cc6b6b63f1c547f8fb389a9f235bb0504150b9df2ff264aa9a6c16c} in December, a slower pace than the 4.8{3df20c542cc6b6b63f1c547f8fb389a9f235bb0504150b9df2ff264aa9a6c16c} seen during the prior month.

Stock futures surged after the report’s release, and Wall Street kept up gains early in Friday’s session as it weighed the potential implications of slowing wage growth on the Federal Reserve’s monetary tightening path.

“Indeed, expectations for a soft landing in the economy have likely been boosted in light of today’s jobs report — yet, with the unemployment rate back to the historic low of 3.5{3df20c542cc6b6b63f1c547f8fb389a9f235bb0504150b9df2ff264aa9a6c16c}, how realistic is it to expect wage growth to move meaningfully lower?” Principal Asset Management Chief Global Strategist Seema Shah said.

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“The Fed will likely be skeptical. And so, with the record low unemployment rate indicating that there is still so much work ahead of them, Fed policy rates are set to rise above 5{3df20c542cc6b6b63f1c547f8fb389a9f235bb0504150b9df2ff264aa9a6c16c} within just a few months and a hard landing looks to be the most likely outcome this year. The recession clock is ticking.”

November’s payroll gains were downwardly revised to show 256,000 jobs were created during the month, fewer than the 263,000 previously reported. The unemployment rate was also revised down to 3.6{3df20c542cc6b6b63f1c547f8fb389a9f235bb0504150b9df2ff264aa9a6c16c} from 3.7{3df20c542cc6b6b63f1c547f8fb389a9f235bb0504150b9df2ff264aa9a6c16c}.

The labor force participation rate in December ticked up slightly to 62.3{3df20c542cc6b6b63f1c547f8fb389a9f235bb0504150b9df2ff264aa9a6c16c}, still 1{3df20c542cc6b6b63f1c547f8fb389a9f235bb0504150b9df2ff264aa9a6c16c} below its level in February 2020 before the COVID-19 pandemic began. This measure was largely unchanged throughout 2022.

At the industry level, the largest gains were seen across leisure and hospitality, health care, construction, and social assistance.

Leisure and hospitality, one of the industries hardest hit by the pandemic, continued its strong recovery, with employers adding 67,000 jobs during the month. An average 79,000 leisure and hospitality jobs were added or created per month across 2022, a fraction of the 196,000 jobs per month gained in 2021. Employment in the sector remains 932,000 jobs — or 5.85{3df20c542cc6b6b63f1c547f8fb389a9f235bb0504150b9df2ff264aa9a6c16c} — short of pre-COVID levels.

Jobs across healthcare rose by 55,000 in December and by an average of 49,000 per month across the year — notably higher than the monthly average of 9,000 seen throughout 2021.

Construction jobs rose by 28,000 in December, and social assistance jobs increased by 20,000.

Even as hiring and wage growth has trended down, members of the Federal Reserve have consistently asserted that restrictive policy will be necessary for a sustained period of time until price stability is restored.

Minutes from the Federal Reserve’s December policy meeting released earlier this week indicated members of the U.S. central bank viewed the job market as very strong and nominal wage growth as still highly elevated.

“Participants generally concluded that there remained a large imbalance between labor supply and labor demand, as indicated by the still-large number of job openings and elevated nominal wage growth,” a readout of discussions from the gathering stated. “Under an appropriately restrictive path of monetary policy, participants expected labor market supply and demand to come into better balance over time, easing upward pressures on nominal wages and prices.”

Leaders across Corporate America have continued to announced layoffs, though job cuts still remain concentrated among the tech sector. Amazon (AMZN) CEO Andy Jassy said Wednesday the company would cut “just over 18,000 roles,” a higher reduction than initially planned. Salesforce (CRM) also said this week it would slash 10{3df20c542cc6b6b63f1c547f8fb389a9f235bb0504150b9df2ff264aa9a6c16c} of its workforce, while Vimeo (VMEO) cut headcount by 11{3df20c542cc6b6b63f1c547f8fb389a9f235bb0504150b9df2ff264aa9a6c16c} in its second wave of reductions.

Bank of America’s Michael Gapen pointed out earlier this week that tech layoffs may not show up in employment data for as long as laid-off workers are receiving severance.

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Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc

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