Labor market added 216,000 jobs in December, capping year of big gains
The unemployment rate has now remained below 4 percent for 25 months, a stretch last accomplished in the 1960s. Average hourly wage growth accelerated slightly in December continuing to outpace inflation, boosting workers’ spending power, especially among the lowest earners.
“In many ways the labor market is at its best place it has been, not only since [before covid], but by some measures in decades,” said Diane Swonk, chief economist at accounting giant KPMG.
Unexpectedly strong labor market gains throughout 2023 offered a big political win for the Biden administration, which also weathered much criticism about rising prices throughout the economy.
Jared Bernstein, chair of the White House Council of Economic Advisers, said on a call with reporters Friday morning that December’s job gains were “a strong number for this stage of a jobs recovery.”
“The president has long underscored the benefits of persistently tight labor markets,” Bernstein said. “Such conditions empower workers who might otherwise be left behind.”
Major stock indexes hesitated following the release of December’s jobs numbers, as the data added uncertainty to whether the labor market has cooled enough to nudge the Federal Reserve to cut interest rates in the spring.
Employment in service-based sectors, including government, health care, social assistance, and leisure and hospitality, continued to buoy the labor market in December. Government added 52,000 jobs, mostly at the local and federal level and in education, as the sector has finally been able to catch up with the private hiring and attract new workers with improved wages.
Health care added 38,000 jobs, reflecting both a backlog of demand from pandemic-era lockdowns as well as an increased need for care among the aging baby-boomer population. Employment in social assistance rose by 21,000, mostly in services for individuals and families, such as therapists and social workers. The leisure and hospitality sector added 40,000 jobs, but has remains below its pre-pandemic level as employers have struggled to attract new workers.
Meanwhile, transportation and warehousing lost 23,000 jobs, overwhelmingly in delivery roles, as the industry continues to contract from its rapid growth during the pandemic.
“There’s been a long, drawn out correction from the buildup of e-commerce sector,” said Andrew Flowers, a labor economist at Appcast, a digital job recruitment firm. “This world of ‘I’m going to buy a ping-pong table online and order Grubhub’ that was so prevalent has really been unwinding.”
Sectors more sensitive to interest rates, such as information, financial activities, professional and business services and manufacturing, continued to see little to no job growth, as has been the trend in 2023 as the Fed pushed rates up.
Average hourly wage growth accelerated slightly in December, rising by 4.1 percent over the previous 12 months to $34.27 an hour. That’s one percentage point above inflation, which was at 3.1 percent in November, a divergence that should boost consumer spending in the new year.
Alice Weaver, a 60-year-old housekeeper at a Detroit casino, went on strike this fall and won a 17 percent immediate pay bump. She’s is one of many workers in the leisure and hospitality industry who has benefited from the continued tight labor market that has pushed employers to boost wages to retain workers.
“This changes everything,” said Weaver. “We’ll be able to do a whole lot more. Gas to food. There was a [recent] time when you couldn’t save any money, couldn’t take time off without really suffering.”
But there are some warning signs in Friday’s report that could complicate the Fed’s plan to cut interest rates in 2024. Policymakers are looking for wage growth to continue but at a more moderated pace to avoid a new spike in inflation. The share of Americans participating in the labor market had been rising for most of 2023, but it dropped to 62.5 percent in December, which could become a problem if it turns into a trend. Central bank policymakers hope to grow the nation’s pool of workers to ease labor market tightness.
“This report probably keeps a March [interest rate] cut in play but it’s something that will be fiercely debated and a very close call and it will depend on how inflation data evolves,” said Stephen Juneau, an economist at Bank of America.
Over the past year, the labor market’s surprising resilience, driven by stronger-than-expected consumer spending, has helped more vulnerable workers, including Black workers, women, and people who did not go to college. The Black unemployment rate hit an all-time low in the spring at 4.7 percent. The labor force participation rate for women ages 25 to 54 reached a record high.
These gains were accomplished even as job creation softened substantially in 2023 from the labor market’s peak coming out of covid-19 lockdowns.
That ongoing cooling is the result of fighting inflation by raising the cost of borrowing. So far, those rate hikes appear to have successfully brought down inflation without triggering widespread job losses. And easing inflation has helped improve dour consumer sentiment in the United States, which rose to a five-month high in December, according to one survey.
Though the economy appears to have dodged a recession, which was widely predicted by Wall Street forecasters only a year ago, many economists expect more labor market cooling in 2024. Job openings fell to a low in November last reached in 2021, according to the Bureau of Labor Statistics. The hiring rate has also fallen substantially, now below its 2019 pre-pandemic levels.
“The labor market is still tight in that labor demand exceeds labor supply, but it’s cooling in the sense that that gap is narrowing,” said Flowers, the economist at Appcast.
But layoffs remain lower than pre-pandemic levels, with new unemployment claims falling to a two-month low last week, according to data released Thursday by the Labor Department. Joe Brusuelas, chief economist for the accounting firm RSM US, said that employers are “very carefully managing their workforces and are not willing to unload workers, even as the economy cools.”
Brusuelas said that the service-based industries that are driving job growth at the moment should be able to continue churning out jobs in the new year, keeping the labor market ticking along at a pace strong enough to avoid a sharp rise in unemployment.
But Swonk, the KPMG economist, cautioned that concentrated gains in job creation make the labor market “more susceptible to external shocks.”
And there are other risks for the economy headed into 2024, including the looming threat of a government shutdown, geopolitical turmoil abroad and economic growth that pushes the Federal Reserve to continue to raise interest rates.
