December Jobs Report Preview: Pockets of Light in the Winter of Discontent

This Friday, the Bureau of Labor Statistics (BLS) will release the December jobs report. Last month, the job market continued its gradual descent, with job gains slowing to 263,000 and the unemployment rate holding steady at 3.7 percent. That moderating trend likely sharpened in December.

During the second half of 2022, the labor market was both a steady bright spot against an increasingly ominous economic outlook and a stubborn reminder of a still strong economy, despite efforts to reduce inflation. Many will breathe a sigh of relief at the hint that the tides of the labor market are starting to recede, which would imply a more moderate future path for interest rates. By all indication, a December chill will finally snap the labor market’s seemingly endless summer.

Here are three trends we'll be watching for in the December jobs report:

Pockets of Light Amid the Winter of Discontent

The U.S. economy rings in 2023 at a precarious moment. The current consensus among economists is for a mild recession during the first half of the new year. We have yet to see the full consequences of recent aggressive interest rate hikes, so in some ways, those expectations are premature. Inflation eased in November and December, but many of the underlying forces that drove price pressures in 2022 remain unresolved.

Some economists have voiced fears of a wage-price spiral – the idea that higher wages will drive higher consumer prices – as occurred in the 1970s when wages for large swaths of the labor force were contractually indexed to inflation. The reality is that the structure of the U.S. economy today is dramatically different from then. Inflation-indexed wage contracts are rare now, especially among the knowledge workers who dominate the U.S. labor force, and the spread of remote work has introduced a new degree of downward nominal wage flexibility.

It is increasingly difficult to speak of the labor market in a single breath because – outside the relatively rare moments of macro-level crisis – there is no single labor market. Instead, there are many distinct regional-, skill- and industry-specific labor markets. Employees’ future-looking fears are surging in several prominent industries, but their outlook remains stable in others. Glassdoor review data where employees rate their company’s six month business outlook show that the share of reviews indicating a worsening business outlook have surged in technology, real estate, and finance but are stable (or only slightly above) pre-pandemic norms in aerospace, insurance and energy/mining. Outlook fears are also high and rising in the critical healthcare and education sectors.

Seasonal Adjustment Disorder

As it does at the start of every calendar year, the BLS will be updating its estimates of the factors it uses to disentangle the month-to-month fluctuations associated with standard seasonal patterns from the more enduring trends that economy-watchers care most about. These estimates are designed to incorporate shifting seasonal patterns gradually. Still, they can introduce distortions when there are sudden changes in the economy – such as at economic turning points – or shifts in the economy’s underlying structure, as seen during the COVID-19 pandemic.

One of the most prominent changes in the labor market that occurred as a result of the pandemic was a change in the timing and focus of holiday-season retail. With the economy-wide pivot toward e-commerce, the historic fourth-quarter surge in retail hiring became somewhat less prominent and shifted toward third-quarter headcount at wholesalers and package delivery firms. With holiday hiring now both earlier and more muted than in the past, conventional seasonal adjustment methods are likely to introduce an artificial boost to seasonally adjusted fourth quarter payrolls – even after the methodological updates this month.

Conclusion

It will be easy to overinterpret the broader economic implications if the December jobs report hints at any easing in hiring conditions or a less heated labor market. Coming in the wake of months of relatively strong reports, a single point is hardly a trend. But given the ecosystem of alternative data and anecdotal evidence, it should not be dismissed off hand either. The labor market is doubtlessly slowing. But even more importantly, it is changing.

With monthly retirements running upward of 260,000 according to Social Security Administration data – about 15,000 to 20,000 higher than pre-pandemic levels, and 50,000 to 60,000 above levels a decade ago – the baseline rate of job creation necessary to maintain a non-inflationary labor market has shifted downward. The lesson from the full panorama of labor market and economy-wide data is clear: We should probably be a little bit less afraid of 2023, and a little bit more concerned of the years that will follow.

Methodology

We analyzed business outlook ratings from current full-time & part-time U.S. employees on Glassdoor. Employees can rate their employers’ “6 Month Business Outlook” as “Positive”, “Neutral” or “Negative”. We calculated the share of all business outlook ratings that were “Negative”.