December Jobs Report: Let It Slow, Let It Slow, Let It Slow

The latest jobs numbers are out from the U.S. Bureau of Labor Statistics. What do they mean for job seekers, employers and investors? Here’s a quick take from Glassdoor’s Chief Economist Aaron Terrazas.

The jobs market can’t stop, won’t stop dashing financial market hopes for data supporting the case for lower interest rates. Today’s hot hiring data will likely cool expectations building since mid-December’s hit of a Fed pivot on lending conditions. After holding remarkably warm for much of 2023 despite interest rate headwinds and a momentary surge in layoffs, the jobs market closed out the year with another expectation-defying month of strong hiring and near-record low unemployment.

Payroll Growth Accelerates Past Fading Post-Strike Recovery

Payroll employment grew by 216,000 in December, faster than the 173,000 pace (revised downward from 199,000) in November. October’s strike-distorted payroll gains were also revised lower from 150,000 to 105,000.

Hiring was strongest in business cycle agnostic sectors like government (+52,000, primarily in local government), healthcare (+38,000) and social assistance (+21,000).

Employment in the transportation sector declined (-23,000), particularly in the package delivery sector (-32,000) which historically sees a seasonal bump in December. Productivity gains and accelerated outsourcing to independent contractors in the package delivery sector likely points to a longer-term stagnation in last-mile delivery jobs despite shifting consumer patterns toward online shopping.

Unemployment Rate Steady

The unemployment rate held at 3.7 percent in December, after unexpectedly dipping from 3.9 percent in October to 3.7 percent in November. It is up from 3.4%-3.7% at the end of 2022 and the start of 2024 but has been roughly flat over the past two quarters. Unless we start to see the unemployment rate begin to move definitely higher over the spring, it will begin to flatline from a year earlier by the early summer.

In a persistently tight labor market facing demographic headwinds, labor force participation may better reflect the extent of jobs market slack than the unemployment rate. After moving steadily higher for much of the past three years, the prime-age labor force participation rate has begun to stall, and it declined by 0.3 percentage points to 62.5 percent in December – its lowest since last February.

Wage Growth Rebounds

Wage growth re-accelerated to 4.1% year-over-year in December, up from 4.0 percent in November. Despite a general trend of slowing wages, we are likely to see wage growth pick up during the first months of 2024 as new minimum wage laws take effect and as we begin to see the full effects of new union contracts negotiated over the Fall.

Conclusion

Today’s Jobs Report defies a steady stream of data pointing to a definitive slowing in the labor market. If the labor market continues to remain this robust, we could see broader price pressures and corporate pricing power reassert themselves after easing in late 2023 – potentially leading to a second surge in broader inflation. Today’s data will push against broader hopes for a definitive cooling in the economy that would buttress the case for lower interest rates in 2024. All in all, 2023’s final round of jobs data lived up to a year when the labor market simply refused to slow.

More Insights

216,000 jobs added to payrolls in December is a solid number, right about average for 2023. Over 2023, there were 2.7 million jobs added to payrolls, down from 2021–2 when there were more jobs coming from the reopening of the economy, but 2.7 million jobs added is still the highest pre-pandemic jobs growth since 2015.

Jobs growth in December was driven in large part by private education & health services (+74,000) and government (+52,000). Health care, education and government together accounted for almost 4 in 5 (79%) jobs created in the second half of 2023, a higher share than in the past few years.

Splitting by sector, you see the slowdown in leisure & hospitality, professional & business services, information and manufacturing from 2022 to 2023 while education, government and health care have been stable if not stronger.

Average hourly earnings growth ticked up to 4.1% year-over-year in December, a touch hotter than expected, though it was also married with a tick down in average weekly hours, which has been largely stuck in the same range for much of 2023.

The unemployment rate held flat at 3.7% in December, holding onto the improvements seen in November, however, this was against the backdrop of a fall in the labor force participation rate which point to a softer December than the headline payroll growth implies.

The prime age labor force participation and employment-population ratio both also took a step back in December, returning to rates from earlier in the year. A disappointing end to 2023 for important measures that had been on track to reach new multi-decade highs.

The Black unemployment rate fell sharply in December, but just like the overall unemployment rate, this was also married with a declining labor force participation rate. Black labor force participation is still higher than a year ago but ideally, both figures would improve in tandem.