The labor market ended 2023 on a heater.
The main takeaway from the December jobs report, out Friday morning, was an indefatigable labor market that surprised economists with its strength, as hiring remained at a strong pace despite interest rates that haven’t yet been cut by the Federal Reserve.
The US economy added 216,000 jobs in 2023’s final month, up from 173,000 in November and more than the 175,000 economists had expected.
A drop in participation kept the unemployment rate steady at 3.7%. Wage growth was also firmer than expected.
But Friday’s surprising data isn’t, in our view, as interesting as the numbers that came out Wednesday. As our Chart of the Week shows, the Job Openings and Labor Turnover survey out earlier this week showed job openings remain historically high — making Friday’s surprise feel like less of a surprise.
The market mainly read Wednesday’s numbers directionally: The number of job openings fell significantly compared to the month before.
On an absolute basis, open roles remain starkly above hires compared to historical trends. As DataTrek’s Jessica Rabe wrote earlier this week: “As much as the US labor market continues to cool, labor demand still far exceeds the supply of available workers.”
If employers had their way, Friday’s numbers would have been even higher.
When looking at the number of open roles relative to the number of unemployed workers, we find that as of November there were 1.6 open jobs for every one person out of work. At the height of the pre-pandemic economic expansion, this ratio topped out just north of 1.3.
Now, as we all know in this business, it doesn’t matter what you did last month. It’s about what you’ll do next month.
On this basis, then, the market’s confidence the Fed will begin cutting rates as soon as March remains warranted. And additional data out Friday showing softness in the services sector helps bolster that case.
But there is little doubt the US labor market remains in good health. And by extension, so too does the US economy.
“The cyclical components of employment are slowing,” wrote Rick Rieder, BlackRock’s chief investment officer of global fixed income, on Friday, “but the data is very far from being alarming to anyone with a pragmatic and broad view of the economy.”
“Overall,” Rieder continued, “we learned this week from this employment data, the ISM data and then the Fed minutes that the economy is exhibiting a much more normal path.”
