In an unexpected twist, the US economy wrapped up 2023 on a high, with job growth witnessing an impressive surge. In December, the labor market contributed an additional 216,000 jobs, exceeding predictions and eclipsing the previous month’s tally of 173,000. Wall Street, once again caught off guard, had anticipated a more modest increase of 175,000 jobs, according to economists surveyed by Bloomberg.
The latest data from the Bureau of Labor Statistics, released on Friday, indicated that the unemployment rate remained steady at 3.7% for December, defying predictions of a slight uptick to 3.8%. The report has captured the attention of investors, who were keenly observing whether the Federal Reserve could achieve a soft landing, where inflation retreats to the Fed’s 2% target without triggering a recession. This outcome could influence the Fed’s approach to rate cuts in the upcoming year.
A pivotal factor in achieving a soft landing is the normalization of the labor market, which experienced a red-hot period during the pandemic. Nela Richardson, chief economist at ADP, emphasized that the Federal Reserve is likely to take notice of the significant increase in job additions, particularly in small businesses. Richardson stated, “What we’re seeing with companies is insistent hiring, especially small businesses.”
The release of the jobs report has led to a shift in investor expectations regarding interest rates. Bets on an interest rate cut in March have reduced, with the CME FedWatch Tool indicating a decrease from an 88% chance a month ago to a current 56% probability after the March meeting.
The unexpected strength in the labor market has not only benefited investors but has also positively impacted consumers’ wallets. Wages, a crucial indicator for inflation and a measure of workers’ leverage in the labor market, increased by 0.4% on a monthly basis and 4.1% over the past year. Economists had anticipated a more modest rise of 0.3% for the month and 3.9% over the year.
Despite the overall positive trend, some key metrics experienced declines. The labor force participation rate dipped to 62.5%, down from 62.8% the previous month, while average weekly hours worked saw a slight decrease from 34.4 to 34.3.
Nancy Vanden Houten, lead US economist at Oxford Economics, acknowledged the noise in the data but expressed the expectation that evidence of further loosening in labor market conditions and a decline in inflation would prompt the Fed to begin cutting rates in May.
In terms of sector-specific performance, the largest job increases in the December report were observed in government, with the addition of 52,000 jobs, and healthcare, which saw an increase of 38,000 jobs. Conversely, the transportation and warehousing sector experienced the most significant losses, shedding 23,000 jobs, while social assistance lost 21,000 jobs.
Earlier data released in the week hinted at an improving balance between worker supply and demand in the labor market. The latest Job Openings and Labor Turnover Survey revealed that job openings in November had reached their lowest level since March 2021.
Additional labor market data from ADP, released on Thursday, showed that private payrolls exceeded expectations last month, while wage growth continued to slow. ADP emphasized that the decline in wage gains is a positive development in the fight against inflation, stating that “any risk of a wage-price spiral has all but disappeared.”
In conclusion, the robust job growth observed in December stands as a testament to the resilience and upward trajectory of the US economy.
Source: Yahoo Finance
