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The December jobs report, to be released Friday morning, will provide the final snapshot of the state of the labor market in 2023, with fresh insight into whether its strength will continue as the new year unfolds. Economists estimate 160,000 jobs were created last month, down from 199,000 in November.
“In many ways the labor market is at its best place it has been not only since [before covid], but by some measures in decades,” said Diane Swonk, chief economist at accounting giant KPMG.
November’s strong job gains partially reflected the end of the autoworkers and Hollywood strikes. The reopening of those industries, and the downstream effects, could continue to buoy December’s jobs numbers, and even show up as a spike in workers’ earnings.
Over the past year, the labor market’s surprising resilience, driven by stronger-than-expected consumer spending, has helped the labor market’s more vulnerable workers. Last year, the Black unemployment rate hit an all-time low, at 4.7 percent. Meanwhile, workers have been flooding into the labor market, due to an influx of immigrants and the return of women to the workforce, thanks to parental leave policies and remote work options. Labor force participation rate for women ages 25 to 54 reached an all-time high in 2023.
The gains were accomplished even as job creation softened substantially last year from the labor market’s peak coming out of covid-19 lockdowns. That ongoing cooling is the result of a campaign by the Federal Reserve to fight inflation by raising the cost of borrowing. So far, those rate hikes appear to have successfully brought down inflation without triggering widespread job losses. And easing inflation has helped improve dour consumer sentiment in the United States, which rose to a five-month high in December, according to one survey.
Though the economy appears to have dodged a recession, which was widely predicted by Wall Street forecasters only a year ago, many economists expect more labor market cooling in 2024. Job openings fell to a low in November last reached in 2021, according to the Bureau of Labor Statistics. The hiring rate has also fallen substantially, now below its 2019 pre-pandemic levels.
“The labor market is still tight in that labor demand exceeds labor supply, but it’s cooling in the sense that that gap is narrowing,” said Andrew Flowers, a labor economist at AppCast, a digital job recruitment firm.
But layoffs remain low, with new unemployment claims falling to a two-month low last week, according to data released Thursday by the Labor Department. Joe Brusuelas, chief economist for the accounting firm RSM US, said that employers are “very carefully managing their workforces and are not willing to unload workers, even if even as the economy cools.”
Recently, job growth has been fueled by a handful of service-related industries — health care, government, education and social services. The expansion of health care reflects both a backlog of demand from pandemic-era lockdowns as well as an increased need for care among the aging baby boomer population.
Meanwhile, sectors that are more sensitive to interest rate hikes, such as financial activities, manufacturing, financial and business services, transportation and warehousing, and information, which includes tech, have seen little job growth or losses over the past year.
Brusuelas, the RSM US economist, said that the industries that are driving job growth at the moment should be able to continue churning out jobs in the new year, keeping the labor market ticking along at a pace strong enough to avoid a sharp rise in unemployment.
But Swonk, the KPMG economist, cautioned that more concentrated gains in job creation make the labor market “more susceptible to external shocks.”
And there are other risks for the economy headed into 2024, including the looming threat of a government shutdown, geopolitical turmoil abroad and economic growth that pushes the Federal Reserve to continue to raise interest rates.
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