U.S. employers added 216,000 jobs in the final month of 2023, the Labor Department reported Friday, capping off an extraordinary year of growth that defied the expectations of many forecasters.
The economy added 2.7 million jobs overall during 2023, and 167 million people were employed at the end of the year – a record high. The unemployment rate stayed steady at 3.7% in December – the 23rd month in a row with the rate below 4% – and the average jobless rate for the year came in at 3.6%.
Wages rose at a sold clip, too, with average hourly pay up 4.1% in December compared to a year earlier. That increase, though, could be troubling for the central bankers at the Federal Reserve as they contemplate potential interest rate cuts in 2024. Stronger than expected wage growth could push Fed officials to keep rates at peak levels for longer as they try to ensure that inflation continues its downward trend.
At the same time, there were some signs of potential weakness in the report. Job growth in the previous two months was revised downward by 71,000, and December’s employment increase was concentrated in just a handful of industries, led by government (+52,000). In the final three months of the year, private companies added just 115,000 jobs per month on average, the weakest three-month average since the middle of 2020, when firms were still laying off workers due to the pandemic. And the labor force shrank by 676,000, pushing the labor force participation rate down to 62.5%, the lowest reading since February.
Taken as a whole, the December report indicates persistent resilience in the labor market, even as it continues to downshift from the period immediately following the post-pandemic reopening of the economy. “A gradual labor market cooldown remains in place," said Scott Anderson, chief U.S. economist at BMO Capital Markets, per Reuters. “However, the lingering labor market resilience and strength in wage growth could keep the Fed on the sidelines for longer than the markets currently expect.”
Yellen celebrates ‘soft landing’: Treasury Secretary Janet Yellen said Friday that U.S. policymakers are succeeding in their effort to reduce inflation without pushing the economy into a recession and causing major job losses. “What we’re seeing now I think we can describe as a soft landing, and my hope is that it will continue,” Yellen told CNN. “The path the labor market and economy and inflation have followed suggests they’ve made a set of good decisions,” she added.
Yellen took a shot at the experts who have argued that a soft landing was highly unlikely and perhaps impossible. “There has been a lot of pessimism about the economy that’s really proven unwarranted,” Yellen said. “A year ago, most forecasters believe we would fall into a recession. Obviously, that hasn’t happened.”
Analysts at Bank of America Global Research also had an optimistic take on the latest jobs data. “The December employment report continued to show a gradual cooling in the labor market that is more consistent with a soft landing than a recession,” they wrote in a research note Friday. “We think the overall tone of the report - despite the beat in headline payrolls - is supportive of the Fed's view that the labor market is coming into better balance.”
