WASHINGTON– Few saw this coming.
A year ago, most economists were predicting a bleak 2023 for the United States. They warned that the economy would surely falter, probably sinking into a recession, and employers would add just 100,000 jobs a month on average, enough to keep up with population growth but not much more.
No recession came. Instead, many more jobs emerged: a monthly average last year of 225,000. The labor market defied the pessimists and shook off the increasingly high interest rates the Federal Reserve designed to combat high inflation.
In fact, the economy generated job growth at a roughly ideal pace: fast enough to support household income and job security, but not so fast as to accelerate inflationary pressures. Inflation, which had exploded in 2021 and 2022, cooled throughout 2023, making it more likely that the Federal Reserve would achieve a “soft landing”: controlling inflation without derailing the economy.
That Goldilocks scenario is believed to have extended into the new year, with likely consequences for the 2024 presidential election: When the Labor Department releases the January jobs report on Friday, it is expected to show that employers added a solid 177,000 jobs, according to a survey of forecasters from data firm FactSet.
“Job seekers still have plenty of job opportunities, employers are finding hiring less difficult, and policymakers have been pleasantly surprised by the prospects for a soft landing,” said Nick Bunker, director of North American economic research at Indeed Hiring Lab.
A series of high-profile layoff announcements, from companies including UPS, Google and Amazon, have raised some concerns that they could herald the start of a wave of job cuts. However, compared to the country’s vast workforce, recent layoffs have not been significant enough to make a dent in the broader labor market. Historically speaking, layoffs remain relatively low, hiring remains stable, and the unemployment rate remains consistent with a healthy economy.
For January, the unemployment rate is expected to reach 3.8%. That would be an increase from 3.7% in December, but would still mark two consecutive years of unemployment below 4%, the longest streak since the 1960s.
Consumers as a whole have proven more resilient than expected in the face of the Federal Reserve’s rate hikes. Having built up savings during the pandemic, they were willing to spend them when the economy reopened. And a wave of early retirements, some of them related to COVID-19, limited the number of people available to work and contributed to a tight labor market.
The economy is sure to weigh on voters ahead of the presidential election. Despite signs of fundamental strength in the economy, polls show that most Americans remain dissatisfied. A key factor is public exasperation over higher prices. Although inflation has been slowing for a year and a half, overall prices remain well above where they were when the rise in inflation began.
Still, public mood appears to be gradually improving. A measure of consumer confidence by the University of Michigan has risen in the past two months by the biggest jump since 1991. A survey by the Federal Reserve Bank of New York found that Americans’ inflation expectations have reached its lowest point in almost three years. And a new poll from The Associated Press-NORC Center for Public Affairs Research found that 35% of American adults think the national economy is good, up from 30% who said so late last year.
Diane Swonk, chief economist at tax and consulting firm KPMG, said she expects a “jobs boom in January”: 250,000 jobs added, well above consensus. One reason is technical: seasonal factors. In January, companies generally lay off a large portion of workers. help they hired for the holiday shopping season, but in 2023, retailers didn’t hire as many holiday workers as usual, so there won’t be as many layoffs in January to slow overall job growth.
Swonk also expects heavy hiring from health care companies and state and local governments that are still flush with cash and looking to fill vacancies that have been open since the economy began recovering from the pandemic recession.
December’s jobs picture, healthy as it was, revealed a couple of flaws that might have worried the Federal Reserve: The number of Americans who had a job or were looking for one (the labor force) fell by a sizeable 676,000. .
From an inflation-fighting perspective, a smaller workforce means that employers cannot be as selective in hiring and may feel pressure to raise wages to retain or attract workers, and to raise their prices to compensate for their larger workforce. labor costs. That cycle can perpetuate inflation.
And average hourly wages in December rose 4.1% from a year ago, up from a 4% increase in November. Lydia Boussour, senior economist at consulting firm EY, forecasts another 4.1% year-on-year hourly wage increase in January. But she expects wage pressure to ease and average annual wage growth to fall to 3.5% in the second half of 2023, roughly in line with the Federal Reserve’s 2% inflation target.
The rate at which Americans leave their jobs, which Boussour considers a reliable predictor of wage trends, has slowed to pre-pandemic levels. That suggests workers are less confident about finding a better job elsewhere. As a result, employers are less likely to feel pressure to raise wages to maintain them.
Although hiring remains brisk, it has clearly slowed from the breakneck pace of a couple of years ago, a trend that pleases the Federal Reserve and should help clear the way for rate cuts to begin later this year. The economy added a still-strong 2.7 million jobs last year, up from 4.8 million in 2022 and a record 7.3 million in 2021. Employers are posting fewer job openings but not laying off many workers.
“It’s still a good labor market for wages and job searches, but it’s coming back into balance, and that’s what we want to see,” Chairman Jerome Powell told reporters Wednesday after the Federal Reserve left rates unchanged but will signal its intention. to start cutting them at the end of this year.