The U.S. economy added 216,000 jobs in December, far exceeding economists’ forecasts of 155,000 jobs, according to the Labor Department’s monthly jobs report released Friday. The unemployment rate edged up slightly to 3.5% from 3.4% in November.
Key Details from the December Jobs Report
Here are some of the top-level details from Friday’s better-than-expected December 2023 jobs report, including job growth, the unemployment rate, and wage growth:
| Metric | December 2023 | Expectations |
|---|---|---|
| Nonfarm Payrolls | +216,000 | +155,000 |
| Unemployment Rate | 3.5% | 3.4% |
| Average Hourly Earnings | +0.3% month-over-month 4.6% year-over-year | 0.3% MoM 4.6% YoY |
The December data shows continued momentum in the U.S. labor market to round out 2023, beating economists expectations. Job growth remained surprisingly resilient despite high inflation for most of 2023 and the Federal Reserve aggressively raising interest rates to combat it.
Strong December Caps Off Robust Year for Job Growth
The December gain caps off the 10th straight month of job growth over 200,000 and above the 2022 monthly average of 375,000. For all of 2023, nonfarm payrolls increased by 4.5 million, slowing from the 2022 total of 4.8 million while still remaining surprisingly robust in the face of economic headwinds.
The leisure and hospitality sector again led job gains in December, increasing payrolls by 67,000. Other major contributing sectors included health care, construction, and manufacturing.
Unemployment Rate Ticks Up Slightly
The U.S. unemployment rate edged up to 3.5% in December from 3.4% in November, remaining just above the pre-pandemic 50-year low of 3.4%. This uptick comes even as payrolls grew by much more than expected last month.
The labor force participation rate was unchanged at 62.3% in December as labor supply remains constrained. An aging population and lackluster immigration are contributing to worker shortages.
Despite high inflation for most of 2023, consumers have remained resilient, supporting continued labor market demand. However, economists expect job growth to slow in 2024 as the Federal Reserve’s interest rate hikes cool economic activity.
Wage Growth Moderates But Remains High
Average hourly earnings rose 0.3% in December, down from 0.4% growth in November but in line with expectations. On an annual basis, wages were up 4.6% in December compared to 4.8% annual growth in November.
Wage growth peaked at over 5% in 2022 but has since moderated as inflationary pressures show signs of easing. However, annual pay gains remain well above the pre-pandemic norm, reflecting persistent tightness in the labor market amid elevated prices and spending.
While moderating wage growth is a welcome sign for the Fed, pay gains may need to slow further to help rein in inflationary pressures.policymakers will be monitoring wages closely in the coming months.
December Report Reduces Odds of Rate Cut in 2024
The stronger-than-expected December jobs numbers deal a blow to hopes that rapidly slowing job growth would prompt the Federal Reserve to cut interest rates later this year.
Many investors had bet rates would come down in 2024 to boost economic growth as signs emerged that the Fed’s aggressive tightening was working to reduce inflationary pressures.
However, the latest data provides ammunition for policymakers to maintain their hawkish stance well into 2024. Traders pared bets on rate cuts following the report’s release,though some still expect easing late in the year if job gains continue to fade.
Outlook Remains Uncertain Despite Solid Finish
While the labor market ended 2023 on a high note, significant uncertainty remains around the outlook for 2024. Economists expect job growth to downshift and the unemployment rate to rise as the full impact of substantially higher interest rates ripples through the economy.
Fading fiscal support and recession worries also present downside risks this year. However, the U.S. job machine has defied expectations thus far, and the December surprise makes forecasts even hazier.
Policymakers face tricky decisions in charting the path ahead. More economic data will shape debate around whether additional rate hikes are warranted or if the Fed can afford to become less hawkish. Markets are sure to remain volatile as expectations shift around the policy outlook.
While risks remain tilted to the downside, the labor market is entering 2024 with impressive momentum. However, policy missteps or an external shock could quickly alter the trajectory. Economists caution that substantial uncertainty persists even as the jobs report paints a reassuring picture for now.
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