U.S. Labor Market Ends 2023 on a High, Shows Early Signs of Weakness

January 8, 2024

The U.S. labor market closed out the year in strong shape, with the pace of hiring coming in higher than expected, according to the Labor Department’s most recent jobs report.

December’s report showed that the nation’s employers added 216,000 jobs during the month, while the unemployment rate held steady at 3.7%. Economists surveyed by Dow Jones had been anticipating a much more subdued 170,000 new jobs and the unemployment rate ticking up slightly to 3.8%.

While December’s gains were higher than the previous month’s, November’s figures were downwardly revised to 173,000. October’s numbers also saw a sizable downward revision to 105,000 from the initially reported 150,000. The raft of downward revisions paints a less robust picture of growth for the fourth quarter.

Despite December’s stronger-than-expected gains, the report does show some signs of the labor market cooling, which has largely defied the Federal Reserve’s attempts to slow the economy. A broader measure of unemployment that includes discouraged workers who have given up the search for employment or taken part-time jobs edged higher to 7.1%. The so-called “real” unemployment rate is based on household surveys, which found a 683,000 decline in job holders and an increase of 222,000 among the ranks of those who work multiple jobs.

The workforce participation rate, which tracks the portion of the working-age population who are either employed or actively seeking work, slid 0.3 percentage points to 62.5%, the lowest level since February.

All told, the report, along with the previous months’ revisions, brought the total job gains for the year to 2.7 million, or an average of 225,000 per month. That is down from 2022’s annual total of 4.8 million, or 399,000 per month.

The report complicates the narrative surrounding the Fed. The weakness seen below the surface does support a more accommodative stance from the Fed in the coming year, but the resiliency of job creation and the secularly low unemployment rate could mean the Fed keeps rates elevated for longer than many investors expect.

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