US economy finishes 2023 strong, adding 216,000 jobs in December

MANHATTAN (CN) — The U.S. economy remains relatively robust, with another surprisingly good jobs report showing a labor market largely unfazed by the year’s inflation and hikes to interest rates.

The economy added 216,000 jobs last month, according to Friday’s report by the U.S. Bureau of Labor Statistics, much better than the 170,000-job median forecast by most analysts. The unemployment rate remains unchanged at 3.7%, which is also better than the slight uptick to 3.8% most experts had predicted.

This latest jobs report is also more than the 199,000 jobs added in November and the roughly 150,000 jobs added in October. However, both of those previous reports were revised down by a total 71,000 jobs; October was revised down by 45,000 jobs and November by 26,000 jobs.

While the report is positive from a macroeconomic stance, stock futures fell because it suggests the Federal Reserve may consider the labor market still too hot to begin cutting interest rates as soon as many had hoped.

Some also say the report is misleading and that a job slowdown can be read between the lines, given that the increase was concentrated in just a few non-cyclical sectors, such as government workers and healthcare.

“The 216,000 gain last month was not quite as good as it looks at first glance,” Paul Ashworth, chief North America economist at Capital Economics, wrote in an investors note. “To the extent that it is still a leading indicator of broader employment trends, the 33,000 decline in temporary jobs is also a concern.”

Earlier in the week, payroll company ADP found the U.S. economy added 164,000 jobs last month, nearly all of which were in the service-providing sectors. The gains also largely came in the Northeast and West, whereas the South lost 7,000 jobs. The split was roughly comparable across small-, medium- and large-sized companies.

“We’re returning to a labor market that’s very much aligned with pre-pandemic hiring,” said Nela Richardson, ADP’s chief economist. “While wages didn’t drive the recent bout of inflation, now that pay growth has retreated, any risk of a wage-price spiral has all but disappeared.”

The higher-than-anticipated ADP data also tracked nicely with the Labor Department’s recent unemployment report, which showed 202,000 initial claims were filed during the last week of December, below economists’ predictions and in line with the previous several weeks’ reports.

On the other hand, the Bureau of Labor Statistics’ job openings and quits report, known as the JOLTS report, came in worse than the consensus forecast. Job openings fell slightly to 8.79 in November from 8.85 million the prior month, the lowest point since March 2021. The report’s quits rate also slipped down to 3.5 million, its lowest point since September 2020.

One sector that continues to underperform is manufacturing. According to the latest Institute for Supply Management manufacturing survey, the sector saw a sub-50 print for the 14th consecutive month — indicating a contraction — while the prices paid by manufacturers fell for the eighth consecutive month. New orders again fell and backlogged orders remain weak, which indicate the next survey will also be below the telltale 50-point mark.

Taken as a whole, the jobs data indicates the Federal Reserve will stay the course during the first six months of this year and start cutting interest rates sometime during that period.

Nancy Vanden Houten, lead U.S. economist at Oxford Economics, wrote in a research note that “the signs of a loosening in labor market conditions in the JOLTS data should increase the Fed’s confidence that wage growth – along with inflation more broadly – is moving toward the Fed’s objective."

She added the central bank likely could start cutting interest rates as early as May.

Follow @NickRummell