Economic Commentary

Economic Commentary

January 5, 2024

Job market resilience continued in December, upping the chances of soft-ish landing

Executive summary

U.S. payrolls in December added 216,000 jobs, well above consensus expectations of 175,000. That boosted the six-month average to 192,800 – even after incorporating downward revisions to the prior months.

The unemployment rate held steady at 3.7% for a second month as did the monthly pace of wages. Hours worked ticked downward, but that appears to be related to manufacturing.

Ultimately, the U.S. economy remains solid with a resilient labor market in our view and the path remains open for a soft-ish landing. It also suggests markets may be prematurely positioning for the Federal Reserve (Fed) to begin cutting rates in March. That timeframe is possible, but there’s simply too much economic data, including several more months of jobs and inflation data, between now and March to rule out the need for keeping rates on hold for a while longer. 

A review of the major industry trends

Private payrolls increased by 164,000, the most in three months. Government payrolls added 52,000. Service-providing industries added 142,000 workers, while goods producers added 22,000 workers.

Government remained one of the largest job creators among the major industry groups. It has been the top gainer or runner-up every month since September and averaged roughly 56,000 per month in 2023, more than double the ’22 average of 23,000. While there’s been some headlines suggesting that the uptick in government hiring ahead of the upcoming elections is politically motivated, the data doesn’t support it. Local-level governments accounted for more than two-thirds of December’s 52,000 increase, with local education comprising 37% of the total hiring. Moreover, local education payrolls remain 2,000 below pre-COVID levels. Furthermore, total government hiring is up 1.2% since December ’19 compared to 4.2% for private payrolls, with about 54% coming from the state and local levels.

Manufacturing continues to recover from the auto strikes this past fall. Overall manufacturing was hiring in December, but the motor vehicle subcategory, which includes suppliers along with the big-name manufacturers, shed 2,100 workers. Still, motor vehicle manufacturing payrolls are up 28,000 from a year ago.

Transportation & warehousing sliced 23,000 workers – the third straight monthly decline for a total of 56,000 over that span – during what is typically their peak season. Most of the losses were within couriers, which lost 32,000 workers in December. However, warehousing also shed 4,900 workers and hasn’t hired for 18 months, cutting 109,000 positions over that span. Yet, despite those losses, warehousing payrolls are up 567,000, or 44%, since December ’19.

Temporary help services have seen a similarly long decline, shedding 33,300 jobs in December, and cutting 223,500 positions in the past 11 months. Unlike warehousing, there are 3.8% fewer temporary workers compared to December ’19.

The remaining major industries largely maintained their current trends. 

Wages ticked upward, but the unemployment rate steady

Average hourly earnings rose 0.4% month over month in December, which remains double the pre-pandemic 10-year average of 0.2%. The annual rate rose 4.1%, also well above the pre-pandemic 10-year average of 2.4%.

Average hourly earnings for rank & file workers—officially known as production & nonsupervisory employees—rose 0.3% during the month. The annual pace rose 4.3%, which is well-above its pre-pandemic rate of 3.2%. This is important since production & nonsupervisory employees are the bulk of all employees and where most of the dramatic post-pandemic wage gains have been concentrated.

The unemployment rate stayed at 3.7% for the second straight month. Meanwhile, the broader underemployment rate (U-6) rose to 7.1% in December, though is down from 7.2% in October.

Hours worked—officially known as average weekly hours worked for all employees—fell by 0.1 to 34.3, which is roughly in-line with the pre-pandemic 10-year average. Within manufacturing, hours worked fell to 39.8 but overtime hours held steady for a third consecutive month. Both remain generally in-line with their respective long-term averages.

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