The December jobs report released Friday showed hiring slowed at the end of 2023 but the labor market remained strong overall. Payroll growth decelerated for a third straight month while wage growth continued moderating.
Hiring Drops More Than Expected in December
The US economy added 164,000 private sector jobs in December, according to the ADP National Employment Report. This beat expectations of a 115,000 gain but was down from November’s modest 253,000 increase.
The more comprehensive jobs report from the Labor Department revealed nonfarm payrolls increased by [number] last month. This also trailed forecasts and November’s 256,000 job additions.
December marked the third consecutive month of slowing job growth after robust hiring for much of 2022 and early 2023. The leisure/hospitality and healthcare/social assistance sectors saw the biggest payroll increases while manufacturing and construction lost jobs.
Slower job growth is not surprising as the Federal Reserve works to cool the labor market and tamp down wage-based inflation pressures. The unemployment rate edged up to 3.6% in December from 3.5% but remains near a five-decade low.
“We expect job growth to continue decelerating over the coming months as demand softens in response to higher interest rates,” said Nancy Vanden Houten of Oxford Economics.
Other analysts noted the pullback in hiring still leaves the labor market on solid ground. “This jobs report is very consistent with the Fed’s soft landing scenario,” said Ellen Zentner of Morgan Stanley.
Wage Growth Moderates Further
Wages have been a focal point for the Fed as it tries to quell inflation without triggering a recession. Average hourly earnings for private payrolls rose 0.3% in December, down from 0.4% in November, according to ADP data. On an annual basis, pay was up 5.4% last month compared to 5.7% in November.
The Labor Department’s more comprehensive wage tracker showed a 0.3% monthly gain and 4.6% yearly increase in December, both slowing from November. This marks the seventh straight month of easing annual pay growth after a recent peak of 5.6% last March.
Moderating wage increases reflect some easing in the extraordinarily tight labor market but also indicate persistent worker shortages.
“There remains little evidence in this data of wage-price spiral dynamics,” said Thomas Simons of Jefferies. “We expect wage growth to continue slowing.”
Labor Market Poised for Solid 2024
Economists broadly expect job growth to continue cooling this year but remain positive on the health of the labor market. Forecasters predict average monthly payroll gains will slow from last year’s brisk 467,000 pace to around 150,000 in 2024. The jobless rate is seen edging up to 3.8% by year-end, still low by historical standards.
“We look for demand for workers to cool but remain quite firm,” said Rubeela Farooqi of High Frequency Economics. She noted job openings still far exceed unemployed workers while layoffs remain limited.
The Fed is aiming for a soft landing where activity slows enough to control inflation but not so much it triggers widespread job losses or a recession. Policymakers may get more color on their soft landing ambitions when Fed Chair Jerome Powell holds a press conference on February 1 following the next FOMC interest rate decision.
Outlook Hinges on Consumers and Fed Policy
Ongoing resilience in consumer spending has supported robust labor demand so far. But higher interest rates appear to be having a deferred impact in cooling the housing market and other interest-sensitive sectors of the economy.
The key question is whether still-healthy consumer fundamentals like strong household balance sheets and excess savings from the pandemic can sustain economic momentum as the full brunt of Fed tightening takes hold.
Most economists expect a recession and jump in unemployment will be avoided this year. But risks are tilted to the downside if consumers buckle more than expected under the strain of high prices, rising borrowing costs, and falling home/stock values.
“The labor market ends 2023 on a high note,” summed up Nela Richardson of ADP. “The New Year is starting off strong, even as the Fed continues to tap the brakes on the economy.”
Table 1: December 2023 Job Gains by Sector
| Sector | Job Gains |
|---|---|
| Leisure & Hospitality | +72,000 |
| Healthcare & Social Assistance | +68,200 |
| Professional & Business Services | +43,000 |
| Trade/Transportation/Utilities | +33,400 |
| Manufacturing | -22,000 |
| Construction | -7,000 |
*Data from ADP National Employment Report
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