Despite the hard work of the Federal Reserve over the last several months, the jobs market remains sturdy enough — for now, anyway. Rising interest rates have not yet slowed jobs growth or even wages, although today’s jobs report from the Bureau of Labor Statistics has a potential alert on that front.

In December, the US economy added 223,000 jobs, slightly off the pace from a month earlier, and the official U-3 employment rate dropped slightly to 3.5%:

Total nonfarm payroll employment increased by 223,000 in December, and the unemployment rate edged down to 3.5 percent, the U.S. Bureau of Labor Statistics reported today. Notable job gains occurred in leisure and hospitality, health care, construction, and social assistance. …

The employment-population ratio increased by 0.2 percentage point over the month to 60.1 percent. The labor force participation rate was little changed at 62.3 percent. Both measures have shown little net change since early 2022. These measures are each 1.0 percentage point below their values in February 2020, prior to the coronavirus (COVID-19) pandemic. …

The number of persons not in the labor force who currently want a job fell by 352,000 to 5.2 million in December and is little different from its February 2020 level of 5.1 million. These individuals were not counted as unemployed because they were not actively looking for work during the 4 weeks preceding the survey or were unavailable to take a job.

While still a respectable number, it’s down from the previous two months. The BLS issued downward revisions to both its October and November results as well, trimming off 28,000 combined in previously reported gains. Today’s results still come in more than 10% lower than November’s 256,000 jobs gains.

Wages may also show some sign of a coming slowdown. Investors took heart this morning on the lower-than-expected wage gains, annualized at 4.6% and still well below all measures of inflation, which means that workers are still falling behind. It also means, though, that we aren’t seeing a wage-price spiral that would send inflation into the stratosphere:

U.S. stock futures jumped Friday when the December jobs report showed that employment was only slightly stronger and wage gains were less than expected, showing some signs of progress amid the Federal Reserve’s interest rate hikes to tame inflation.

Dow Jones Industrial Average futures rose 150 points, or 0.31%. S&P 500 futures gained 0.28%, while Nasdaq-100 futures jumped 0.39%.

The December nonfarm payrolls report showed that the U.S. economy added 223,000 jobs last month, slightly higher than the expected 200,000 jobs economists polled by the Dow Jones expected. In addition, wages grew slower than anticipated, increasing 0.3% on the month where economists expected 0.4%.

One other point to note in this report: hours worked fell slightly by 0.1%. That could be just some statistical noise, but December is usually a big month for overtime in retail and hospitality industries especially. That may be another sign that the Fed’s interest rate hikes are having their intended impact on employment, even while hiring itself is still expanding faster than a maintenance level.

The workforce numbers are cheerier, however. The ratio went up, although that’s been in a somewhat lower range since the start of the pandemic, showing that we have yet to fully recover. That’s backed up by this month’s Household survey, which showed 439,000 additions to the workforce and a correlated drop of 303,000 people who no longer identify as “not in labor force.” Those measures are volatile month-on-month, but the raw number is lower than it has been for the last three months and almost identical to the same level a year ago. The civilian labor force number is over 2.5 million higher than December 2021, too, which suggests that the Great Resignation and quiet quitting may have begun to wind down as well.

And it finishes off a pretty robust 2022, the Wall Street Journal reports:

U.S. employers added 223,000 jobs in December, a sign of continued strength in the labor market. The jobless rate moved down to 3.5% from a revised 3.6% in November.

The December payrolls numbers are a slight decline from November’s revised increase of 256,000, the Labor Department said Friday.

For all of 2022, U.S. employers added 4.5 million jobs, the second-best year for job creation on records back to 1940 after 2021, when the labor market rebounded from the pandemic-induced shutdowns and added 6.7 million jobs.

Hiring was resilient throughout 2022 despite an economy that is slowing alongside the Federal Reserve’s aggressive pace of interest rate increases intended to bring down inflation. However, some recent data and a wave of tech and finance industry layoffs suggest the labor market, while still vibrant, might be starting to lose momentum and gains could reverse in the year ahead.

That is the Fed’s strategy, of course. It’s the only strategy they can execute on their own, for that matter. What the economy really needs to end its inflationary cycle without an induced recession are supply-side policies that would increase production to meet demand, but the Fed doesn’t have the authority to set those policies. All they can do to stem inflation is kill demand, and they haven’t quite achieved that yet.

Still, the stubbornly resilient jobs market still has room for the so-called “soft landing” on inflation, and Joe Biden has time to shift to supply-side policies. We could still avoid a recession and return to stable growth this year, but it would require a reversal at the White House — and we haven’t seen any signals of that yet. Instead, we can expect Biden to celebrate these numbers today and miss the opening that they provide.