The U.S. economy added 216,000 jobs in December, far exceeding economists’ expectations and capping off the strongest year of job growth since 2021. The unemployment rate held steady at 3.7%.
Key Details from the December Jobs Report
- 216,000 jobs were added in December, compared to expectations of around 170,000
- Unemployment rate remained at 3.7%
- Average hourly earnings rose 0.3% for the month and were up 5.3% over the past year
- The civilian labor force participation rate ticked up to 62.3%
“This is a labor market that continues to astound and defy expectations,” said Nick Bunker, head of economic research at Indeed. “The strength of this labor market likely means we’re going to see more interest rate hikes from the Fed this year.”
The leisure and hospitality sector led job gains with a pickup of 67,000. Health care added 55,000 jobs, with job gains seen in ambulatory care and nursing facilities. Construction also posted a healthy gain of 28,000 thanks to unseasonably warm weather in parts of the country.
Is a Recession Still Coming?
Many economists predicted a recession was imminent heading into 2023 amid high inflation and a hawkish Federal Reserve. However, the U.S. economy has proven remarkably resilient thanks to a robust job market.
“Consumers have not retrenched in a major way despite higher interest rates,” said Sarah House, senior economist at Wells Fargo. “That’s largely because the job market remains historically strong.”
Still, there are signs the breakneck job growth seen for much of 2022 is starting to ease. Monthly gains averaged around 375,000 for the first half of 2022 before slowing in the second half. And some sectors like housing and tech have shown notable weakness.
What This Means for Interest Rates
The strong jobs data will likely give the Federal Reserve more room to stick to its rate-hiking campaign. Markets are currently pricing in a terminal rate of around 5% this year, just below the Fed’s own projection.
“This will be unwelcome news for Fed officials who were hoping for signs of slowing,” said Sal Guatieri, senior economist at BMO Capital Markets. “It seals the deal for a higher than anticipated peak policy rate.”
Most economists expect at least two more 25 basis point hikes at the next couple meetings. But additional hikes could be on the table if inflation remains sticky and the labor market continues holding up better than expected.
Industry Job Changes in 2023
While most sectors saw job gains in 2023, some areas of the economy fared better than others. Here is a breakdown of job changes by industry last year:
|2023 Job Gains/Losses
|Leisure & Hospitality
|Major rebound after huge pandemic losses
|Professional & Business Services
|Strength in temporary help services and computer systems design
|Particularly robust hiring in ambulatory care and social assistance
|Residential construction remains strong
|Gains driven by durable goods manufacturing
|Transportation & Warehousing
|Supply chain woes weigh on hiring
|Mixed performance across subsectors
|Layoffs at some big tech firms
What to Watch Heading into 2024
Inflation. While price growth has cooled substantially from 40-year highs, inflation remains well above the Fed’s 2% target at 6.4%. The strength of the job market will give Fed officials less room to pivot on policy.
Earnings growth. One bright spot has been solid wage growth, with average hourly earnings up 5.3% over the past year. But that trails inflation. Rising wages without corresponding inflation relief threatens profit margins.
Geopolitical turmoil. Events like the war in Ukraine or rising tensions between the U.S. and China could spill over to impact things like trade flows, commodity prices, business and consumer sentiment.
The labor market has defied naysayers so far. But risks remain tilted to the downside amid high inflation, rising rates and global uncertainty. The strength of the jobs recovery will face its biggest test yet in 2023.
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