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Unemployment has fallen to 3.5%, matching the lowest level in half a century


We are in a Goldilocks moment for the U.S. job market - not too hot and not too cold. Today we learned that U.S. employers added 223,000 jobs last month as the unemployment rate fell to just 3.5%, matching its lowest level in half a century. And at the same time, hundreds of thousands of new workers entered the job market in December, which helped take some of the pressure off rising wages and inflation. Wall Street liked what it saw in this jobs report. The Dow Jones Industrial Average jumped more than 700 points. NPR's Scott Horsley joins us now. Hi, Scott.


SUMMERS: So, Scott, how do all of those numbers add up to good news for the American economy?

HORSLEY: Well, the economy is still adding lots of jobs for people who want them. All told, the U.S. added more than 4 1/2 million jobs last year. That's more than enough to fill the hole left by the pandemic. But the economy is no longer adding jobs at the breakneck pace it was. So it's not too hot, but it's also not too cold. Job growth is just gradually coasting to a slower pace, not slamming on the brakes in a way that would suddenly throw a lot of people out of work. That's why people are calling this a Goldilocks report. Wages are going up but not as fast as they were. And as you said, that could take some pressure off inflation, although economist Michael Pugliese of Wells Fargo cautions the inflation watchdogs at the Federal Reserve are not likely to be satisfied just yet.

MICHAEL PUGLIESE: This is still a very tight labor market. At 3.5% unemployment, you know, wage growth still running in that four to 5% range, that's clearly still, I think, more tight than what we had in 2019. So things are moving in the right direction. But that doesn't mean mission accomplished, and it doesn't mean there's not still, you know, some pain to come.

HORSLEY: The Fed is expected to keep raising interest rates when it meets again in a few weeks. But investors are increasingly confident that it will be a smaller rate hike, just a quarter percentage point or so. And that's one reason you saw that big rally on Wall Street today.

SUMMERS: So, Scott, the Fed's been warning that the job market has been out of balance for a long time. Employers have wanted more workers than they can find. Does it seem to be more balanced now?

HORSLEY: It does, even though, as Pugliese says, the unemployment rate is still really low. One positive sign is that last month, more than 400,000 people came off the sidelines and started working or looking for work, and that's encouraging. The share of adults who are in the labor market inched up by a 10th of a percent. You can see this in the health care industry, which added 55,000 jobs last month. Chief economist Greg Daco of EY says that's important because health care is an industry that has really struggled to find workers, especially in the wake of pandemic burnout.

GREGORY DACO: It is indeed very encouraging to see some of the workers in the health care sector are starting to come back because that is a sector that has been underperforming.

HORSLEY: More broadly, the workforce has not yet recovered to where it was expected to be before the pandemic struck. Some older workers retired. They might not come back. Immigration is still depressed. So those are some of the factors keeping the job market tight. But the mismatch between available jobs and workers to fill those jobs did narrow a bit last month.

SUMMERS: We've also, in recent days, seen headlines of some big tech companies announcing layoffs. What kind of signal does that send?

HORSLEY: Yeah. You certainly can't ignore it when a company like Amazon says it's going to cut 18,000 jobs or Salesforce says it's cutting 10% of its workforce. But keep in mind these are companies that had expanded very rapidly during the pandemic, and now they're having to adjust to a somewhat different economy. Amazon, for example, is having to compete more with brick-and-mortar stores now than it did early in the pandemic. On the whole, we are not seeing much evidence that layoffs are widespread. New claims for unemployment benefits, for example, are still very low. That could change. Temporary help firms, for example, cut 35,000 jobs last month. Daco says that is sometimes a warning signal about what's in store for other workers.

DACO: Temporary jobs tend to be a leading indicator of economic slowdowns. So the pullback in temporary hiring is likely a further indication that, over the course of 2023, we're going to see weaker job growth and weaker employment.

HORSLEY: And there are some other signs of a possible slowdown in today's report. The average workweek was a little bit shorter last month. Factory workers put in a little less overtime. All of that suggests businesses are seeing somewhat less demand for goods and services, and eventually that could result in more layoffs. For the moment, though, a lot of employers seem to want to hang on to the workers they have. In many cases, it was hard to find those workers. So bosses may be reluctant to let them go.

SUMMERS: That was NPR's Scott Horsley. Thank you.

HORSLEY: You're welcome. Transcript provided by NPR, Copyright NPR.

Scott Horsley is NPR's Chief Economics Correspondent. He reports on ups and downs in the national economy as well as fault lines between booming and busting communities.