The US labor market ended 2023 with a bang. More jobs were created than experts had expected and there were hopes that the economy can reach solid, sustainable levels of growth rather than slipping into recession.
Employers added a seasonally adjusted 216,000 jobs in December, the Labor Department reported Friday. The unemployment rate remained unchanged at 3.7 percent.
Although hiring has slowed in recent months, layoffs remain at record lows. The durability of both hiring and wage gains is all the more remarkable given the Federal Reserve’s aggressive series of rate hikes in recent years. However, a number of analysts warn that the situation is not yet clear and say it will take time for the impact of these higher interest rates to be reflected in business activity.
“The real test for the labor market begins now, and so far it is passing the test,” 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 ambiguous narratives about the economy. Most economists warned that the Fed’s rapid increase in borrowing costs would tip the economy into a downturn. For 2023, more than 90 percent of business leaders surveyed by the Conference Board said they expected a recession. And many leading analysts assumed that the price increases could only be moderated if workers suffered significant job losses.
But the resilience of the overall economy and consumer spending has so far contradicted this forecast: in June 2022, inflation was around 9 percent. Since then, inflation has fallen to 3 percent while the unemployment rate has remained largely unchanged.
Overall, the US economy created around 2.7 million jobs last year. That’s a smaller increase than in 2021 or 2022. Still, the 2023 increase was larger than in the late 2010s and represented the fifth strongest year for job growth since 2000.
Still, the report contained indications that the landing could still be bumpy.
Services such as health care, social assistance and state and local governments led employment gains in December, but previously hot sectors such as transportation and warehousing either lost jobs or posted only modest gains.
The total labor force – the number of people currently working or looking for work – has shrunk by almost 700,000 workers, according to December data. After steady growth in the workforce for much of 2023, this wasn’t welcome news.
In addition, the numbers for October and November were revised downwards by 71,000. That puts the average monthly job gain in the final quarter of 2023 at about 165,000 – a decline from about 221,000 in the third quarter and 201,000 in the second quarter.
Omair Sharif, the founder of data analytics firm Inflation Insights, said in a note to subscribers that the December figure represented “a healthy increase” but added that “hiring numbers have declined significantly.”
At the start of an election year, the employment situation also has a political dimension.
President Biden, whose handling of the economy has received low ratings in voter polls, announced the December numbers. “Strong job creation continued even as inflation fell,” he said in a statement, noting that prices remain a concern for many in the country.
The University of Michigan’s closely watched consumer sentiment index was at its lowest in December 83 percent of the time since 1978, a period that included shocks and downturns that look worse on paper than today. However, the index rose for much of last year, and several factors may have contributed to a sunnier perception.
After nearly two years of inflation outpacing wage increases, that balance has shifted in recent months. The average hourly wage of employees rose by 0.4 percent in December compared to the previous month and by 4.1 percent compared to December 2022.
The housing market frozen by higher interest rates is a source of frustration for ambitious first-time home buyers. But for those who own homes — about two-thirds of American households — the average interest rate on all outstanding mortgage debt is just 3.7 percent, protecting them from higher housing costs.
Although many families have struggled since 2021 and are falling back into poverty as the net of federal aid related to the pandemic response dwindles, the share of disposable household income going to debt repayment remains below pre-pandemic levels Sign of overall solid consumer health.
Annie Wharton, a 56-year-old art consultant in Los Angeles, is a beneficiary of the financial stability that many middle-class and wealthier Americans have been able to achieve despite the dizziness of the 2020s.
Art is a business that “has always had challenges,” Ms. Wharton said. “But I’m happy to say this has been a good year.”
Her office received a loan from the Commerce Department under the Paycheck Protection Program, a key part of the government’s pandemic relief effort, which allowed her to keep her small staff fully employed throughout.
Things have slowed “due to the uncertain economic outlook,” she added, saying “people seem to be more cautious than normal” and “everyone is thinking twice before buying.” But she remains optimistic.
Here too, the greatest uncertainties are likely to come from abroad.
In 2022, as disruptions to global supply chains eased, Russia’s invasion of Ukraine caused the price of oil and a wide range of food and energy goods to skyrocket, sometimes doubling or even exceeding the price, leading to further inflation .
Last year largely saw a lull in new disruptions. But since the fall, wildfires have spread across the Middle East and are threatening important international trade routes. Maersk, the international shipping giant, has said it will keep container ships out of the Red Sea for the foreseeable future, where drone and missile attacks on merchant vessels have increased in recent weeks.
As a result, the cost of transporting goods from Asia to Northern Europe has risen about 170 percent since December, according to Bloomberg analysts who track global trade. Oil and gas prices, which have fallen significantly since the start of the war in Ukraine, have been largely unaffected by the recent turmoil, but longer-lasting disruptions could be felt by American consumers in the form of higher prices for energy and goods.
Kathy Bostjancic, chief economist at insurance giant Nationwide, predicts the economy will experience at least a moderate recession this year and unemployment will rise to 5 percent.
But the optimistic analysts in the domestic economic debate largely stick to their view.
Joseph Brusuelas, chief economist at consultancy RSM, expects inflation to continue to ease, “which will strengthen domestic household balance sheets and boost consumption in the coming year.”
Art Papas, chief executive of Bullhorn, a software provider for staffing and staffing agencies, says there is “a lot of pent-up demand” among his customers – mid-sized and large companies – as they eagerly await the green light for further hiring and investment.
“It feels like we’re in this strange state of equilibrium,” he said, “that I’ve never seen before.”
Santul Nerkar contributed reporting.