The jobs outlook remains strong

The December jobs report from the Bureau of Economic Analysis again highlights the resilience of the post-pandemic labor market, across the nation and in Houston -- and suggests the Federal Reserve will continue raising interest rates in 2023.

The report, released Friday, finds that the United States added 223,000 jobs in December, exceeding analysts' estimates and pushing the unemployment rate lower, to 3.5 percent from 3.6 percent, a 50-year low. Here's what Houstonians should know about the report, which has implications for businesses and consumers as well as workers:

1. The Houston employment outlook remains healthy as 2023 begins.

The December jobs report is a healthy one, with the United States economy adding some 20,000 more jobs than economists had forecast and most employment sectors seeing gains.

The number of leisure and hospitality jobs, such as those at hotels and restaurants, grew by about 67,000 in December, although employment in the sector remains below its February 2020 pre-pandemic level. Health care employment increased by 55,000, and the construction sector added 28,000 jobs as contractors prepare for a flurry of federal spending on infrastructure projects expected to begin in 2023.

Overall, the United States added 4.5 million payroll jobs in 2022, and more than 650,000 of those jobs had been added in Texas as of November.

Full-year data for the state and the Houston-The Woodlands-Sugar Land metro area will be released later this month. Still, the December jobs report hints that the Houston employment situation will remain strong, even if the national labor market picks up some slack.

The oil and gas industry continues to hire, with the mining and logging sector, which includes fossil fuel production, adding 4,000 jobs during December and 60,000, about 10 percent, during 2022.

The sector is a relatively tiny one, accounting for not quite 5 percent of jobs even in the Houston area, according to the Texas Workforce Commission. But as the region's manufacturing and construction sectors are directly affected by how things are going in the oil and gas industry, gains in the mining sector are generally good news for Houston employment. Manufacturing jobs include those that make the equipment necessary to produce, move and store oil and gas.

Meanwhile, recent high-profile layoffs among U.S. tech giants such as Amazon have left the Houston area largely unscathed. The region has yet to develop into the technology center that city leaders would like, despite efforts of incubators such as Greentown Labs, Station Houston and TMC3 that have made the city a technology leader in the state.

2. Expect interest-rate hikes, if you weren't already.

There are some signs in the December jobs report that the labor market is slowing after running red-hot since COVID-related lockdowns were lifted beginning in 2021. The 223,000 jobs added in December is slightly fewer than the 263,000 added in November 2022 and dramatically fewer than the 528,000 added in July. Wage growth is slowing, too. Average hourly earnings increased just 0.3 percent from November to December, for an increase of 4.6 percent compared with December 2021. Before the pandemic, earnings were rising at about 3 percent per year.

That isn't entirely bad news. The Federal Reserve spent much of 2022 trying to slow the economy and cool the labor market to rein in inflation, which hit double digits in the Houston area last summer and continues to run above 7 percent nationwide.

Gus Faucher, senior economist at Pittsburgh-based PNC Bank, says that although the December jobs figures show signs that the Fed's measures to tame rising prices are having an effect, they are unlikely to dissuade the central bankers from raising interest rates again at their meeting at the end of the month.

"To slow inflation the Fed wants softer job growth, probably of around 100,000 per month; weaker wage growth; and a slight uptick in the unemployment rate, indicating more labor market slack," Faucher said.

Federal Reserve Chair Jerome Powell said as much in December, after announcing the seventh rate hike of 2022, though a quarter point lower than the four previous hikes of three-quarter points.

"There are channels through which the labor market can come back into balance with relatively modest increases in unemployment, we believe," he said, after warning that interest rate hikes will likely be "ongoing" for some time.

Houston consumers and businesses should keep that in mind if they're looking to buy a home or to finance major purchases, such as cars or appliances, in 2023.

3. Workers should use their leverage while they can

Last year was an unusually strong one for workers, with employers across the country in virtually every sector bemoaning a shortage of qualified workers. Many economists argue that workers will retain some degree of leverage in 2023, even if the labor market slackens, because employers will be keen to retain employees they struggled to hire in the first place.

That may be especially true in Texas, and the Houston area, both of which added jobs at a faster clip than the nation as a whole in 2022 -- and both of which are likely to see continued employment growth in 2022, according to economists.

In a new JPMorgan Chase survey of small- and medium-size business owners, 59 percent of Texas respondents expressed optimism about the outlook for their local and regional economy in 2023, compared with 39 percent of respondents across the nation who said the same. In addition, a quarter of Texas respondents said they expect to pay retention bonuses this year, compared with 16 percent of national respondents who have such plans.

Still, the labor market is expected to cool somewhat this year after a generally hot 2022. So if you're looking for a job, keep in mind that you're in a good position to negotiate at the moment -- but also remember that over the coming months, some of that leverage could slip away.

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