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December Jobs Report a Good One
Wage pressures are (hopefully) easing
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U.S. employers added 223,000 net new jobs in December, which is more than expected but also the fewest since the economy lost 115,000 jobs in December 2020. The unemployment rate fell to 3.5% and is once again at its lowest level since 1969. The labor force expanded by 439,000 people in December, a welcome development after it shrank by 187,000 people over the previous three months.
Average hourly wages increased by $0.09 (+0.3%), which is less than expected and the slowest growth since February. That’s very good news on the inflation front, even if the incredibly low unemployment rate isn’t.
For nine straight months, job growth has exceeded the consensus forecast (a streak approaching unsuccessful Speaker of the House votes territory). We might be heading toward a recession, but we’re not there yet.
To recap, the economy has:
Rapid (but slowing modestly) job growth
Historically low unemployment and continued low labor force participation
Slowing wage growth
Today’s employment report has me dreaming of a scenario where job growth slows a bit but remains positive, wage growth fades enough for inflation to fall back toward 2% without too many more rate hikes, and the unemployment rate rises a little but, by historical standards, stays low. In this very hypothetical scenario, the economy somehow avoids recession; in other words, has a soft landing.
(For what it’s worth, investors seem to be dreaming of this scenario too; as of this writing, markets are rallying in response to the lower-than-expected wage growth data.)
Is a soft landing actually possible? Maybe, but I wouldn’t bet on it. I’ve been more optimistic regarding recession odds than Anirban, but the lack of meaningful labor force growth and existing labor force dynamics are concerning, and I still think we’ll see some pretty serious economic turbulence in 2023.
Nondurable good manufacturing lost 16,000 jobs for the month. That’s in line with sagging indicators of manufacturing activity, which Anirban will cover in depth in the Week in Review post later today (for paying subscribers only).
The information segment, which includes tech, lost 5,000 jobs for the month. Given recent high-profile layoffs at Amazon, Salesforce, and other tech companies, that checks out.
The healthcare and social assistance industry added 74,400 jobs in December, with strong growth in both home health car services (+10,800 jobs) and nursing and residential care facilities (+9,100).
Temporary help services (think hiring agencies) lost 35,000 jobs in December and 77,600 jobs during the fourth quarter. This segment is supposed to be an indicator of future hiring activity, but I’m not sure that holds when the unemployment rate is at its lowest level since Nixon was in office. Who needs a hiring agency when virtually everyone is looking for workers?
Leisure and hospitality added 67,000 jobs for the month, but the industry still employs about 930,000 fewer people than it did in February 2020. At December’s rate of hiring, leisure and hospitality won’t return to its pre-pandemic employment level until the first quarter of 2024.
As always, you can read Anirban’s in-depth thoughts regarding the construction industry’s labor market at Associated Builders and Contractors.
Three (somewhat) Key Takeaways
Women accounted for 84% of December’s labor force growth.
High school graduates who never attended college joined the labor force at a faster rate than any other educational demographic.
The share of those employed with multiple jobs increased from 4.8% in November to 5.1% in December.
What to Watch
Inflation (still). We keep talking about labor market tightness as a problem (and it is), but if inflation returns to a manageable level without a significant change in worker scarcity, well, it will look a lot like late 2019.
Want to Hear Anirban Speak Live?
Of course you do. His 2023 presentation is called Show Me the Money (Supply), and yes, the theme is Tom Cruise movies. If you want to book a presentation (in person or virtual), please contact his assistant Julia (email@example.com).