The U.S. job market exceeded expectations by adding 216,000 jobs in December, providing a strong conclusion to another year of robust growth despite higher interest rates. Policymakers, currently deliberating on when to initiate a reduction in borrowing costs, closely monitor the labor market’s strength as they aim for a “soft landing” for the world’s largest economy, where price growth normalizes, and recession is averted.
Economists had anticipated American employers to add approximately 164,000 jobs in December, a slight decrease from the 173,000 added the previous month. Growth was fueled by recruitment in the public, healthcare, social assistance, and construction sectors as 2023 came to an end. Official data released on Friday revealed a total of 2.7 million jobs added to the U.S. economy throughout the past year, a decline from the 4.8 million added in 2022.
Despite a slowdown in growth, the labor force has defied concerns of a downturn following the Federal Reserve’s aggressive campaign to curb inflation from its highest levels in a generation. It demonstrated resilience in the face of layoffs and strikes throughout the past year.
In December, the headline unemployment rate remained at 3.7%, in line with November figures, according to data from the Bureau of Labor Statistics. Although the job growth reading for last month exceeded economists’ forecasts, the agency revised its estimates for October and November downwards. Consequently, the U.S. workforce in these two months was 71,000 jobs smaller than initially reported.
With a continuous decline in price growth, officials at the Federal Reserve, which last raised interest rates in July, are now contemplating the future of their monetary policy approach. Jerome Powell, the central bank’s chairman, indicated last month that the historic tightening of monetary policy was likely concluded, and discussions on reducing borrowing costs were on the horizon.
The monthly official jobs report is closely monitored by Wall Street for indications of the U.S. economy’s performance. The S&P 500 began the day slightly higher in New York.
Nancy Vanden Houten, lead U.S. economist at Oxford Economics, commented, “There is a lot of noise in the data, but we continue to expect that there will be enough evidence of a further loosening in labor market conditions and a decline in inflation more broadly to allow the Fed to begin cutting rates in May.”
Ian Shepherdson, chief economist at Pantheon Macroeconomics, noted that despite the upside surprise in December, growth in private sector employment “continues to slow relentlessly,” with expectations of further softening in the trend of job growth.