December jobs report: Here are 7 key takeaways
The U.S. economy added 216,000 jobs in December and the unemployment rate held steady at 3.7% as the labor market unexpectedly picked up despite high interest rates.
Here are some key takeaways from the final employment report of the year.
Job growth was unexpectedly strong last month...But
The payroll gains easily topped the 175,000 forecast by economists in a Bloomberg survey. But the strong showing was offset by downward revisions totaling 70,000 to job gains in October and November.
The bottom line: mostly a wash, economists said.
Job growth slowed in 2023
Employers added 2.7 million jobs, or 225,000 a month, last year. That was down from 4.8 million, or 399,000 a month, in 2022 as a post-COVID surge in the economy faded. The pullback is consistent with the Federal Reserve’s goal of paring back job and wage growth enough to tame inflation without sparking a recession – a feat known as a “soft landing.”
The Fed has been sharply raising interest rates to cool the economy and lower inflation.
In an interview, Acting Labor Secretary Julie Su said the drop-off in hiring from unsustainable levels is a good thing and a sign of "strong, steady, stable job growth."
"It's the coveted soft landing," she said.
Fewer industries are driving job gains
Industries that are less sensitive to rate increases and the economy’s ups and downs -- such as government, health care, and social assistance – have accounted for the lion’s share of U.S. job growth lately. Others, such as trucking and professional services, have been flagging.
The trend signals a slowing labor market despite the strong December, says economist Ben Ayers of Nationwide.
Last month, federal, state and local governments led the payroll increases with 52,000. Health care added 38,000 and social assistance, 21,000.
Wage growth picked up
Average hourly pay rose 15 cents to $34.27, pushing up the yearly increase to 4.1% from 4%. That may be mildly discouraging for the Fed, which is trying to slow pay increases that are contributing to inflation. Fed officials would like to see wage growth ease to 3.5% to align with their 2% overall inflation goal.
Labor force participation fell
The share of adults working or looking fell to 62.5% from 62.8%, the biggest decline in nearly three years. A smaller supply of workers could push up wages and make the Fed’s job of wrestling down inflation more challenging.
The participation rate had climbed to the highest level since the pre-pandemic, largely on a surge in immigration and the return to the labor force of women in their prime working years.
The Fed could keep rates higher for longer
The rise in wage growth and fall in participation could help prod the central bank to keep rates higher for longer to make sure it has stamped out high inflation, says Paul Ashworth of Capital Economics. The development lowers the odds of a March rate cut, he says.
Fed officials have signaled they’re likely done raising interest rates and have penciled in three rate cuts this year, assuming inflation continues to come down. The Fed’s preferred inflation measure has fallen from about 7% to 3.2%.
Job market is expected to cool further this year
Employment gains are expected to pull back more dramatically in 2024 as the economy loses steam due partly to the delayed effects of the Fed’s 5.25 percentage points in rate hikes. Moody’s Analytics expects monthly payroll additions to average 53,000.
Atlanta-based BlueFletch, which makes security and sign-in software for workers' handheld devices, has seen its large retail customers cutting costs, says company founder Brett Cooper. Because of high interest rates, the firms are scaling back purchases of mobile devices and that means they need less software, Cooper says.
With sales poised to slow this year, “We intend to assess the economic climate thoroughly before making any additions to our team,” Cooper says. “We do not want to over-hire and then have to make cuts if the economy does soften more in 2024.”
Paul Davidson covers the economy for USA TODAY.