The Job Market Is Hot, With an Unexpected 216,000 Positions Added Last Month

Stocks initially fell in response to the news, which appeared to make it less likely that the Federal Reserve will cut interest rates as soon as investors had expected, though shares later rebounded.

The
CME
FedWatch Tool, which uses interest-rate futures to show the market’s expectations for rates, shows odds of 52% for a reduction in the fed funds rate in March, compared with 62% on Thursday. The odds that rates will remain where they are now in May, with no cut, rose to 12.4% from 7.7%.

Payroll employment rose by 2.7 million throughout 2023, with an average monthly gain of 225,000. The Bureau of Labor Statistics noted Friday that it revised down the October payroll gain by 45,000, going from the initial estimate of 150,000 to 105,000. November’s jobs growth was revised down by 26,000, from 199,000 to 173,000. With these revisions, employment gains in those months is now 71,000 lower than previously reported, according to the agency.

The surprising surge in December payrolls was driven by upticks in hiriing in government, health care, social assistance, and construction. The transportation and warehousing sectors lost jobs. 

Employment within the leisure and hospitality sector and retail, two closely watched industries when it comes to seasonal hiring, was little changed, according to the bureau. Leisure and hospitality gained 40,000 jobs in December. Overall, the industry added an average of 39,000 jobs per month in 2023, less than half the average monthly gain of 88,000 jobs the year prior.

Retail scored a gain of about 17,000 jobs. The majority of that came from warehouse clubs, supercenters, and other general merchandise retailers.

In addition to the unexpected strength in hiring, wage growth accelerated slightly in December. Average hourly earnings rose 4.1% year over year, compared with the 4% rate recorded in November and higher than the consensus call for 3.9% among economists surveyed by FactSet. 

On a monthly basis, wages grew by 0.4%, an increase that was fairly consistent with November’s pace. Economists had expected the increase would slow slightly to a 0.3% monthly rate. Rising wages will likely cause concern among Federal Reserve officials given their impact on inflation in services, but the recent uptick by itself is probably not enough to alter policy in the upcoming months. 

Still, data on participation in the job market showed some signs of a slight weakening. The overall labor force participation rate slid by 0.3 percentage point to 62.5% in December. The metric has remained relatively unchanged over the course of 2023.

The number of unemployed Americans who want a job edged up to 5.7 million in December and was up by 514,000 overall in 2023. These out-of-work individuals aren’t counted in the unemployment rate because they weren’t actively looking for work during the four weeks preceding the survey, or are unavailable to take a job currently. 

The 4.2 million workers employed part-time didn’t change much from November to December, but part-time payrolls grew by 333,000 over the past year. These are individuals who want full-time employment, but have been unable to find it, or who work part-time because their hours have been cut. 

“Today’s report speaks to the bumpy road ahead for the Fed’s journey back to 2% inflation,” writes Andrew Patterson, Vanguard’s senior international economist. “Strong headline job growth and wage growth above 4% combined with Fed communications—including the minutes emphasizing the need to remain higher for longer—decrease the likelihood of preemptive rate cuts.”

Patterson believes this will likely delay policymakers’ discussions of rate cuts, and push the first reduction into the second half of the year. 

Write to Megan Leonhardt at [email protected]