In a surprising turn of events, the United States job market proved resilient in 2023, defying earlier predictions of a bleak economic downturn. Instead, the economy experienced robust job growth throughout the year, averaging 225,000 new jobs per month. This unexpected performance has had a significant impact on the country's economic landscape and may have implications for the upcoming 2024 presidential election.
Many economists had anticipated a sluggish job market with minimal gains, barely enough to keep up with population growth. However, the reality turned out to be quite different. The economy delivered job growth at a pace that struck a balance between supporting household incomes and job security without fueling inflation. In fact, inflation, which had been a concern in 2021 and 2022, began to cool down in 2023, increasing the likelihood of a 'soft landing' for the economy.
As the January jobs report is expected to be released soon, forecasters predict that employers added approximately 177,000 jobs during that month. Job seekers continue to find ample opportunities, and employers are finding it less challenging to hire. These positive trends have led economists and policymakers to be pleasantly surprised by the prospects for a soft landing.
Layoff announcements from prominent companies like UPS, Google, and Amazon have raised some concerns, sparking speculation about a potential wave of job cuts. However, these layoffs, when considered in the context of the nation's vast labor force, have not made a significant dent in the overall job market. Historically speaking, layoffs are still relatively low, hiring remains steady, and the unemployment rate is consistent with a healthy economy.
For January, the jobless rate is predicted to hover around 3.8%, slightly higher than December's 3.7%. Nevertheless, this would mark two consecutive years of unemployment below 4%, the longest such streak since the 1960s.
Contrary to expectations, consumers have proven to be more resilient in the face of Federal Reserve interest rate hikes. Having saved during the pandemic, Americans were willing to spend as the economy reopened. Moreover, a wave of early retirements, some related to COVID-19, has limited the number of available workers and contributed to a tight labor market.
Although the strength of the economy is evident, polls show that the majority of Americans remain dissatisfied. Higher prices, despite a slowdown in inflation, continue to weigh on public sentiment. However, there are signs of gradual improvement. Consumer sentiment, as measured by the University of Michigan, has seen a significant increase in the past two months. Additionally, Americans' inflation expectations have reached their lowest point in nearly three years, according to a survey by the Federal Reserve Bank of New York. Furthermore, a recent poll by The Associated Press-NORC Center for Public Affairs Research shows an increase in the percentage of adults who perceive the national economy as good.
Economists like Diane Swonk, chief economist at KPMG, expect a 'January jobs boomlet' with an estimated 250,000 added jobs, surpassing the consensus. One reason for this robust forecast is the seasonal factor. Typically, businesses lay off their holiday workforce in January. However, in 2023, retailers did not hire as many seasonal workers, leading to fewer layoffs and contributing to overall job growth.
Swonk also anticipates strong hiring in the healthcare sector and by state and local governments that are still financially stable and eager to fill vacancies that have remained open since the economy began recovering from the pandemic recession.
The December jobs report, though impressive, did highlight a couple of concerns for the Federal Reserve. The labor force saw a notable drop of 676,000 individuals. From the perspective of inflation control, a smaller labor force means employers may feel pressured to raise wages to attract and retain workers, potentially leading to higher prices. Average hourly wages in December increased by 4.1% compared to the previous year, and this upward trend is expected to continue for January. However, economists foresee wage pressure easing and anticipate average annual pay growth to drop to 3.5% in the second half of 2023, aligning with the Federal Reserve's 2% inflation target.
The rate at which Americans are quitting their jobs, which serves as an indicator of wage trends, has returned to pre-pandemic levels. This suggests that workers are becoming less confident about finding better job opportunities elsewhere. Consequently, employers may feel less compelled to raise wages to retain their workforce.
While the pace of hiring has slowed compared to the past couple of years, economists view this development positively. It reflects a rebalancing of the labor market and supports the Federal Reserve's plan to initiate rate cuts later this year. In 2023, the economy added a commendable 2.7 million jobs, albeit down from 4.8 million in 2022 and a record-breaking 7.3 million in 2021. Despite a decrease in job postings, layoffs have remained minimal.
Chair Jerome Powell, in his recent statement after the Federal Reserve left rates unchanged, acknowledged the positive labor market scenario, stating, 'It is still a good labor market for wages and finding a job, but it is getting back into balance, and that is what we want to see.' Overall, the employment landscape in the United States has exceeded expectations, and its impact will likely shape the upcoming presidential election in 2024.
