Economists weigh in on implications for 2024
The US economy remained resilient by adding 216,000 jobs in December, surpassing expectations and sustaining economic momentum despite ongoing high-interest rates.
The Bureau of Labor Statistics December report showed payroll growth of 216,000 jobs and an unchanged unemployment rate of 3.7%.
Average hourly earnings, closely watched as an indicator of inflation and worker leverage in the labor market, rose by 0.4% over the last month and saw a 4.1% increase over the previous year. These wage increases, while a positive sign for workers, reflect ongoing elevated levels well above pre-pandemic averages and the typical range aligned with the Federal Reserve’s 2% inflation target.
Notably, the largest job increases were observed in the government sector, with 52,000 jobs added, while healthcare followed closely with 38,000 new positions. These gains helped offset notable losses in transportation and warehousing, shedding 23,000 jobs and in social assistance, which saw a decrease of 21,000 positions.
Mike Fratantoni, chief economist of the Mortgage Bankers Association, pointed out that businesses are hiring fewer temp workers, down 33,000 for the month and 346,000 from its peak – a sign that businesses are adapting to the current market. The labor force participation rate also slightly decreased to 62.5% from 62.8% the previous month.
“Job openings, the pace of hiring, and the quits rate are all trending down, but layoffs and initial claims for unemployment insurance are not moving higher. Together, these data indicate a market where employers are slower to take on new employees but are not seeing enough weakness to dramatically cut payrolls,” Fratantoni explained, projecting a potential increase in unemployment as the economy slows in 2024.
Fratantoni and other economists are cautiously optimistic, predicting that the loosening of the labor market and a decline in broader inflation could prompt the Federal Reserve to begin reducing rates in the coming year, with some expected cuts as early as May.
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First American economist Ksenia Potapov highlighted the construction industry’s strength, especially in residential building, which has rebounded and now exceeds pre-pandemic levels.
“While dipping during the early months of the pandemic, residential building employment recovered quickly and even surpassed pre-pandemic levels,” Potapov said. “Residential building construction employment was up 0.2% year over year, while non-residential was up by 4.9% annually. Compared with pre-pandemic levels, residential building employment is up 11.8%, while non-residential building is up 4.9%.
“Builders have benefitted from a lack of resale inventory and have attracted home buyers by offering price cuts and incentives. The new-home market will likely remain strong as limited existing-home inventory in 2024 pushes more potential buyers into the new-home market. And to build more homes, you need more hammers at work.”
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