The economy beat expectations again in December and added 216,000 jobs, the Bureau of Labor Statistics reported Friday, a sign the labor market defied fears of a recession and maintained momentum through the end of the year.
The unemployment rate stayed the same at 3.7%. Notably, the unemployment rate remains low by historical standards.
The uptick in job growth is a boost for the White House, which has been working to credit President Joe Biden for the strong job creation over the past year, characterizing the underlying strength of the labor market and the broader economy as “Bidenomics” in action.
“Another strong jobs report means more Americans working and getting good raises,” Robert Frick, a corporate economist with Navy Federal Credit Union, said. “It’s also insulation against recession, which is fading further away as more jobs and bigger paychecks mean more consumer spending.”
The year 2023 ended on a positive note, with the holidays giving the economy a bit of a boost, albeit a lesser one than in past years. Retail sales in the United States increased by just over 3% from Nov. 1 to Dec. 24, according to Mastercard SpendingPulse.
The most important economic development of the year was the decline of the inflation rate — but it remained too high at the close of 2023.
The Federal Reserve carried out an aggressive interest rate tightening cycle in response to the inflation. Since the central bank began hiking in March 2022, annual inflation, as tracked by the consumer price index, has fallen from multidecade highs to just 3.1% in November.
Despite the rate revisions, inflation is running hotter than the Fed’s preferred 2% level.
The Fed’s current interest rate target, which has remained at 5.25% to 5.50% since July, has driven up rates on credit card debt, auto loans, and mortgages. Higher mortgage rates, in particular, have crimped the housing market.
But there is some relief in sight.
Because of recent declines in inflation, the Fed has begun finally eyeing a pivot to cutting rates, a prospect for which investors are eager.
While the central bank’s monetary policy committee is now predicting three rate cuts this year, investors are betting that officials will go much further, penciling in some six rate cuts in 2024, according to the CME Group’s FedWatch tool.
The pivot could come soon, too. Investors predict that the first interest rate cut since the start of the pandemic in March 2020 will come at the Fed’s March meeting.
There is also a growing perception that the labor market, and the economy more broadly, will avoid the sort of painful recession that some economists had predicted that the country would already be enmeshed in right now.
Interest rate changes take time to filter through the economy, and an economic slowdown in 2024 is forecast. The degree of that slowdown is what is in question. The Fed itself predicts the unemployment rate will trend up this year and that GDP growth will slow.
The Fed predicts the unemployment rate will rise to 4.1% by the end of this year. Officials also predict a very modest 1.4% in GDP growth for 2024.
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Although the headline numbers for Friday’s report were strong, there were less encouraging signs in the details. The household survey, separate from the survey of business establishments, showed that labor force participation and overall employment dipped. And a year ago, the unemployment rate was lower, and some 600,000 more people are out of work now than in December 2022.
In a separate report on the employment landscape, and in a sign of some weakening, the number of job openings in the U.S. decreased by 52,000 to 8.8 million in November, the lowest that number has been in more than two years. For context, monthly job openings peaked in March 2022, the first month the Fed hiked interest rates, at over 12 million, so the most recent numbers mark a 27% decline from that time.
