In December, the U.S. job market exhibited robust growth, exceeding economists’ expectations with the addition of 216,000 workers, as reported by the Department of Labor. This figure surpassed the anticipated 170,000 jobs and marked an acceleration from the revised totals of 173,000 in November and 105,000 in October.
The unemployment rate remained steady at 3.7 percent, defying predictions of a slight increase to 3.8 percent. The labor market’s performance in 2023 culminated in the addition of 2.3 million jobs, representing the lowest annual increase since the pandemic’s conclusion and the commencement of Joe Biden’s presidency. Notably, this level of job growth is significant in the context of pre-pandemic years and was largely fueled by sectors recovering from the pandemic’s impact and associated lockdowns. The year’s job growth is comparable to levels last seen in 1999.
Private sector payrolls saw a substantial rise, with an addition of 164,000 jobs in December, showing a notable increase from previous months. Government employment also experienced growth, particularly in state and local government sectors, adding 52,000 jobs.
Average hourly wages in December rose by 0.4 percent, exceeding expectations. The annual wage growth rate stood at 4.1 percent, surpassing the 4.0 percent rate in the preceding month and the forecasted 3.9 percent.
The labor market’s slowdown in hiring and wage gains had previously fueled speculation that the Federal Reserve would halt interest rate hikes and potentially initiate rate cuts in the first half of the next year. However, as of their recent meetings, the Fed has maintained rates to assess the impact of earlier increases. The last rate hike occurred in July.
Market expectations for a rate cut by the Fed in March have fluctuated, with the likelihood diminishing in light of the strong jobs report. This reaction was also reflected in the surge of the yield on 10-year Treasuries above 4 percent and a decline in stock futures.
The Federal Reserve’s efforts to moderate labor demand and wage growth aim to curb inflationary pressures. Despite a recent decrease in inflation, it remains significantly above the Fed’s 2 percent target. The latest data indicates a 2.6 percent increase in the personal consumption price index over the past 12 months, with core prices rising by 3.2 percent.
Furthermore, initial jobless claims showed a decrease, falling to 202,000 last week, with continuing claims also declining. ADP’s independent measure of private sector hiring aligns with this trend, reporting an addition of 164,000 jobs in December, higher than the expected 115,000.