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Unemployment rate drops despite fears of a recession

Defining a Recession Explainer
Posted at 8:44 AM, Jan 06, 2023

The U.S. unemployment rate dropped to 3.5% in December, matching several other recent months for being the lowest unemployment rate in decades.

Before July 2022, the unemployment rate had not been below 3.5% since the late 1960s, according to federal data. Last month’s unemployment rate was 3.6%.

Meanwhile, the overall labor participation rate, which has declined since the start of the pandemic, increased by .1 percentage points to 62.3%. The workforce participation rate includes the number of people in the workforce and those looking for work compared to the population over age 16.

The monthly job numbers come as several firms have projected the U.S. would enter a recession in 2023. Their predictions are amid rising interest rates as the Federal Reserve is trying to get inflation down to 2%. As of November 2022, the Consumer Price Index, a key indicator of inflation in the U.S., was 7.1%.

Whether the Federal Reserve continues to be aggressive with interest rate increases will largely determine whether there is a decline in the U.S. economy, Jerry Nicklesburg, an adjunct professor of economics at the UCLA Anderson School of Management and senior economist with the UCLA Anderson Forecast, said earlier this week.

“The sense is 50/50 because we don’t know what the Fed is going to do,” he said. “And we don’t know how much of an impact those previous increases are going to have on interest rates will have. Previous economic analysis project it could take a while for those rate hikes to have an impact.”

Strong job figures could give more fuel to the Federal Reserve to continue hiking interest rates, adding to the likelihood the U.S. enters a recession.

Just as inflation has slowed in recent months, so has the growth of wages. Average hourly earnings increased 9 cents in December, marking a 4.7% increase compared to December 2021.