The U.S. economy added 216,00 jobs in December and the unemployment rate remained steady at 3.7% as the labor market unexpectedly recovered despite high interest rates.
That's more than the 175,000 new jobs that economists surveyed by Bloomberg had forecast.
Normally, booming wage growth is welcomed, but not anymore. The Federal Reserve has raised interest rates sharply to contain job and wage growth enough to contain inflation without triggering a recession – a feat known as a “soft landing.”
The strategy has largely worked: monthly job creation has recently averaged around 200,000, compared to around 300,000 at the beginning of the year. Industries less sensitive to high interest rates — such as government, health care, and leisure and hospitality — have accounted for the lion's share of recent U.S. job growth, according to Oxford Economics.
Will the job market improve in 2024?
Employment gains are expected to decline more sharply in 2024 as the economy loses momentum in part due to the lagged impact of the Fed's 5.25 percentage point rate hikes. Moody's Analytics expects monthly wage gains to average 53,000 this year.
Forecasters broadly predict economic growth will slow to 1.3% in 2024 from a projected 2.4% last year, and they think the chance of a recession is still at 47%, according to this Wolters Kluwer Blue Chip Economic Indicators respondents. Consumers are still spending, but spending sentiment has waned following the COVID-19 crisis, and most low- and middle-income Americans have depleted their pandemic savings and accumulated record levels of credit card debt.
Atlanta-based BlueFletch, which makes security and login software for workers' handheld devices, has seen cost reductions at its major retail customers, says company founder Brett Cooper. Because of high interest rates, companies are cutting back on purchases of mobile devices and therefore needing less software, says Cooper.
With sales expected to slow this year, “we intend to thoroughly assess the economic climate before adding to our team,” Cooper says. “We don’t want to over-hire and then have to make cuts if the economy actually slows further in 2024.”
Contradictory forces are likely to impact the labor market in December.
On the positive side, companies typically make more layoffs at the end of the year to improve their annual performance, but job losses have remained unusually small. Companies that have struggled to hire due to COVID-related labor shortages have been reluctant to lay off workers.
And minimal snowfall in the Northeast and Midwest is likely to have boosted job growth in weather-sensitive industries such as construction and hospitality, Goldman Sachs said.
At the same time, the research firm said, low holiday spending at brick-and-mortar stores is likely to mean another month of declining retail payrolls.
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