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New report: Jobs market still hot but some easing bodes well for sidestepping recession

December unemployment matched a 53-year low, but there are still signs the U.S. jobs market is chilling down

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A help wanted sign is pictured outside of Big 5 Sporting Goods in Salt Lake City on Friday, Jan. 6, 2023.

Kristin Murphy, Deseret News

A U.S. jobs market that ran red-hot throughout 2022 kept that streak alive in December as unemployment notched down, matching a 53-year low as employers added 223,000 new positions, according to a report released Friday by the Labor Department.

While the overall jobs market remains vibrant, and too much so in the eyes of the Federal Reserve amid its efforts to quell inflation, some of the data shows signs of easing that could aid the Fed’s fight against record price increases.

According to the report, last month’s jobs gain, while robust, was the smallest in two years, and extended an overall trend in the rate ticking down. The average hourly pay growth also eased in December, down to its slowest pace in 16 months.

That slowdown could reduce pressure on employers to raise prices to offset their higher labor costs, according to The Associated Press. And that dynamic will be welcomed by the Fed following a year that saw the monetary body enact seven interest rate hikes.

Average hourly wage growth was up 4.6% in December from 12 months earlier, compared with a 4.8% year-over-year increase in November and a recent peak of 5.6% in March.

“We’ve obviously been in a situation over the past few months where employment growth has been holding up surprisingly well and is slowing very gradually,” Andrew Hunter, senior U.S. economist at Capital Economics, told The Wall Street Journal. “There are starting to be a few signs that we’re maybe starting to see a bit more of a sharp deterioration.”

Hot labor market has anchored pesky inflation

U.S. inflation in January 2022 came in at 7.5% and climbed steadily until hitting a 40-year high of 9.1% in July. Since then, the rate has ticked down with the latest report from the U.S. Labor Department pegging November inflation at 7.1%. The U.S. Federal Reserve has pitched a yearlong battle against the elevated prices of goods and services, instituting the most aggressive series of rate hikes in decades in an attempt to cool off the red-hot economy.

But consumer spending has remained robust and the U.S. labor market has continued to run red hot, with unfilled jobs far outnumbering the number of available workers to fill them.

In a December interview, Phil Dean, public finance senior research fellow at the University of Utah’s Kem C. Gardner Policy Institute, said high inflation on its own is usually enough to dampen rampant spending, but an unprecedented level of cash flowed into the pockets of consumers in the form of pandemic stimulus funding and that, along with other factors, continued to buoy spending throughout 2022, even in the face of record-high prices.

“Inflation and rising interest rates have created some challenges in the current economy,” Dean said. “But alongside that, consumer spending continues to be very strong in Utah and across the U.S. During the pandemic, fiscal stimulus checks flowed to consumers and many took advantage of low interest rates that facilitated refinancing of mortgages that freed up even more money. And, if you look at consumers overall right now, they still have a lot of money to spend.”

A “Now hiring!” sign is pictured on the door to Michaels in Salt Lake City.

A “Now hiring!” sign is pictured on the door to Michaels in Salt Lake City on Friday, Jan. 6, 2023.

Kristin Murphy, Deseret News

Is a recession still inevitable?

Rumors and prognostications about an economic recession have been swirling for months but the same dissonant factors that made the 2022 economy so difficult to predict, and control, will continue into 2023.

But the December jobs data could show some glimmer that the Fed’s hoped-for “soft landing,” aka, a gradual slowdown of the economy versus a recessionary crash, is still a viable outcome.

“Historically, when you have high inflation, and the Fed is jacking up interest rates to quell inflation, that results in a downturn or recession,” Mark Zandi, chief economist at Moody’s Analytics, told CNBC in a year-end report. “That invariably happens — the classic overheating scenario that leads to a recession. We’ve seen this story before. When inflation picks up and the Fed responds by pushing up interest rates, the economy ultimately caves under the weight of higher interest rates.”

Zandi, however, is in the minority of economists who believe the Federal Reserve can avoid a recession by raising rates just long enough to avoid squashing growth. But he said expectations are high that the economy will swoon.

“Usually recessions sneak up on us. CEOs never talk about recessions,” Zandi said. “Now it seems CEOs are falling over themselves to say we’re falling into a recession. ... Every person on TV says recession. Every economist says recession. I’ve never seen anything like it.”