US job growth surged unexpectedly in December, government data showed Friday, wrapping up a solid year for the labor market even as voters remain gloomy about the economy ahead of November’s presidential election.
The world’s biggest economy added 216,000 jobs in the final month of 2023, said the Department of Labor, despite expectations of a slowdown from the prior month.
The unemployment rate was unchanged at 3.7 percent, holding at a historically low level and defying forecasts of an uptick.
These robust figures come as higher interest rates bite, after the Federal Reserve lifted the benchmark lending rate rapidly and held it at a high level to ease demand and rein in inflation.
The US economy added 216,000 jobs in the final month of 2023, blowing past analyst expectations – Copyright GETTY IMAGES NORTH AMERICA/AFP JUSTIN SULLIVAN
They also add to optimism that the United States is achieving a so-called soft landing where inflation comes down without a significant downturn.
“This morning’s report confirms that 2023 was a great year for American workers,” said President Joe Biden.
While strong job creation continued as inflation fell, Biden conceded: “I know that some prices are still too high for too many Americans, and I am doing everything in my power to lower everyday costs.”
Although the economy has defied recession predictions amid elevated rates, many Americans remain pessimistic as they grapple with higher costs — as Biden struggles to shift economic perceptions as he seeks reelection.
“What we’re seeing now, I think we can describe as a soft landing. And my hope is that it will continue,” Treasury Secretary Janet Yellen added in a CNN interview.
– ‘Pre-pandemic normal’ –
“Factoring in downward revisions to the prior months’ figures, the three-month average employment gain was 165,000, right in line with the 2019 average,” said ZipRecruiter chief economist Julia Pollak.
This suggests the labor market has returned to “pre-pandemic normal,” she added.
Wage growth was steady in December, rising 0.4 percent from November 2023, said the Labor Department.
From the year before, average hourly earnings rose 4.1 percent, slightly above November’s reading.
“This remains above the Fed’s comfort zone of around 3.5 percent and will keep Fed policymakers on alert,” said EY chief economist Gregory Daco. “Still, we anticipate that wage pressures will cool further.”
In 2023, although sectors like manufacturing and housing were hit harder by higher rates, a resilient labor market helped support consumption and the economy.
Last month, employment trended up in areas like government and health care. But transportation and warehousing lost jobs.
– Still strong –
Ryan Sweet of Oxford Economics warns that “the jury is not going to be out on December employment for a couple more months,” given the potential for revisions.
“But overall, I think the trend is that the labor market is still very strong,” he told AFP.
Friday’s employment data is closely watched for its potential bearing on the Fed’s thinking, as officials mull the path of interest rates.
For now, “the timing of the first rate cut is still up in the air,” Sweet noted. Some expect the central bank could start lowering rates as early as in March.
Economist Ian Shepherdson of Pantheon Macroeconomics said further slowing in payrolls is “not a necessary condition for the Fed to start cutting rates; further evidence that inflation is headed rapidly back towards the target would be enough.”
“This time around, the labor market is not the key driver of the inflation story,” he said.
Analysts add that the Fed will not focus on a single report.
Daco of EY said policymakers are seeking a “balanced labor market.” This means the demand and supply of labor are well-matched and pressures from wage growth are not excessive.
He said indicators like hours worked have shown a return towards pre-pandemic levels, while the rates of hiring and quits are “the lowest since 2014 and 2018 if you exclude the pandemic.”
He expects some reduced hiring ahead, and “strategic layoffs, but no broad-based retrenchment.”
“That should continue to sustain a healthy pace of income growth and in turn consumer spending,” he said.
