The U.S. job market ended 2023 with a bang, gaining more jobs than experts expected and raising hopes that the economy can stabilize at a solid, sustainable level of growth rather than fall into recession.
Employers created 216,000 jobs in December on a seasonally adjusted basis, the Labor Department reported Friday. The unemployment rate remained unchanged at 3.7%.
While hiring has slowed in recent months, layoffs remain near historic lows. The durability of both hiring and wage increases is even more notable in light of the Federal Reserve’s aggressive series of interest rate hikes over the past two years. But a number of analysts warn that the situation is still unclear and say the effects of such higher rates will take time to filter through economic activity.
“The real test for the job market begins now, and so far it is passing,” said Daniel Altman, chief economist at Instawork, a digital platform that connects employers with job seekers.
Financial commentary over the past year has been dominated by competing narratives about the economy. Most economists warned that the Fed raising borrowing costs at a historically rapid pace would send the economy into a recession. Looking ahead to 2023, more than 90% of CEOs surveyed by the Conference Board said they expected a recession. And many leading analysts thought that price increases could only ease if workers suffered significant job losses.
But the resilience of the overall economy and consumer spending has so far defied that outlook: In June 2022, inflation stood at about 9%. Since then, inflation has fallen to 3%, while the unemployment rate has remained essentially unchanged.
Overall, the U.S. economy created about 2.7 million jobs over the past year. This is a smaller gain than in 2021 or 2022. However, the 2023 increase was larger than those in the late 2010s and represented the fifth strongest year for job growth since 2000.
However, the report included suggestions that the landing may still be bumpy.
Services such as health care, social assistance and state and local governments led the way in job gains in December, but previously hot sectors such as transportation and warehousing lost jobs or increased only modestly.
According to December data, the overall workforce – those currently working or looking for work – has shrunk by almost 700,000 workers. This was unwelcome news after steady workforce growth through much of 2023.
Additionally, October and November data were revised downwards by 71,000. That brought the average monthly job gain in the final quarter of 2023 to about 165,000, down from about 221,000 in the third quarter and 201,000 in the second quarter.
Omair Sharif, founder of data analytics firm Inflation Insights, said in a note to subscribers that the December issue represents “a good gain,” but added that “hiring has clearly cooled.”
In view of the election year, the employment picture also takes on a political dimension.
President Biden, whose handling of the economy has earned low ratings in voter polls, announced the December numbers. “Strong job creation has continued even as inflation has declined,” he said in a statement, noting that prices remain a concern for many in the country.
The University of Michigan’s closely watched consumer confidence index was lower in December than it has been 83% of the time since 1978, a period that has included shocks and crises that, on paper, appear worse than the present. However, the index has been rising for much of the past year, and several factors may have contributed to rosier perceptions.
After nearly two years during which inflation outpaced wage increases, that balance has shifted in recent months. Workers’ average hourly wages increased 0.4% in December compared to the previous month and 4.1% compared to December 2022.
The real estate market, frozen by higher interest rates, is a source of frustration for would-be first home buyers. But for those who own their own homes – about two-thirds of American families – the average rate on all outstanding mortgage debt is just 3.7%, protecting them from higher housing costs.
While many families have struggled since 2021, falling back into poverty as the net of federal aid associated with the pandemic response fades, the share of families’ disposable income going toward debt payments is below the prepandemic level, a sign of robust health general consumer.
Annie Wharton, a 56-year-old art consultant from Los Angeles, is a beneficiary of the financial stability that many middle-class and more affluent Americans were able to manage despite the giddiness of the 1920s.
Art is a business that “has always had challenges,” Wharton said. “But I’m happy to say it’s been a good year.”
Her office obtained a loan from the Commerce Department under the Paycheck Protection Program, a key component of the government’s pandemic relief efforts, which allowed her to keep her small staff at full capacity.
Things have slowed “with an uncertain economic outlook,” he added, saying “people seem more cautious than normal” and “everyone is thinking twice before buying.” But she remains optimistic.
Once again the greatest uncertainties could come from abroad.
In 2022, just as global supply chain disruptions were easing, Russia’s invasion of Ukraine caused oil and a wide range of food and energy commodities to soar, sometimes doubling or more in price leading to further inflation.
The past year has largely provided a respite from new disruptions. But since the autumn, fires in the Middle East have expanded, threatening major international trade routes. Maersk, the giant international shipping company, has announced that for the foreseeable future it will keep container ships away from the Red Sea, where drone and missile attacks on merchant ships have increased in recent weeks.
As a result, the cost of shipping goods from Asia to Northern Europe has increased by about 170% since December, according to Bloomberg analysts who track global trade. Oil and gas prices, which have fallen substantially since the early stages of the war in Ukraine, have been mostly unaffected by the latest turmoil, but more prolonged disruptions could be felt by American consumers in the form of higher energy prices and goods.
Kathy Bostjancic, chief economist at insurance giant Nationwide, expects the economy to experience at least a moderate recession this year, with unemployment rising to 5%.
But analysts on the optimistic side of the domestic economic debate largely remain true to their opinion.
Joseph Brusuelas, chief economist at RSM, a consulting firm, predicts that inflation will continue to decline, “which will strengthen domestic household balance sheets and boost consumption in the coming year.”
Art Papas, CEO of Bullhorn, a provider of software for staffing and recruiting agencies, says “there’s a lot of pent-up demand” among his clients – mid-sized and large companies – as they anxiously await the green light to further hiring and investments.
“It seems like we’re in this strange state of equilibrium,” he said, “that I’ve never seen before.”
Santul Nerkar contributed to the reporting.