Labor market added 216,000 jobs in December, capping off year of solid gains

Employers added 216,000 jobs to their payrolls in December, capping a year of exceptional gains for American workers despite some cooling in the labor market.

The unemployment rate held at 3.7%, according to the Bureau of Labor Statistics.

As of December, the labor market added 2.7 million jobs in 2023, with an average monthly gain of 225,000 jobs.

The unemployment rate has now remained below 4% for more than two years, a stretch last accomplished in the 1960s.

Average hourly wage growth accelerated slightly in December, rising by 4.1% over the previous 12 months to $34.27 an hour and continuing to beat inflation, boosting workers’ spending power.

“In many ways the labor market is at its best place it has been, not only since(pre-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.

Employment in service-based sectors, including government, health care and social assistance, as well as construction, continued to buoy the 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 private hiring and attract new workers with improved wages.

Health care added 38,000 jobs, reflecting a backlog of demand from pandemic-era lockdowns and a 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.

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 on unwinding.”

Meanwhile, interest rate-sensitive sectors, such as information, financial activities, professional and business services, and manufacturing continued to see little to no job growth in 2023.

But there were some warning signs in Friday’s report that could complicate the Federal Reserve’s plan to cut interest rates in 2024.

The share of Americans participating in the labor market had been rising for most of 2023, but it fell to 62.5% in December, which could become a problem if it turns into a trend as central bank policymakers hope to bring in new workers off the sidelines to ease labor market tightness.

Policymakers are also looking for wage growth, which sped up in December, to continue but at a more moderated pace to avoid a new spike in inflation.

“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 and women.

The gains were accomplished even as job creation softened substantially in 2023 from the labor market’s peak coming out of covid shutdowns.

That ongoing cooling is the result of fight 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 low, 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 U.S., 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.