U.S. Wages and Payrolls Pick Up
Though the BLS's December jobs report shows an increase in job growth and wage gains that exceeded expectations, it is riddled with caveats about the strength of the labor market.
U.S. job growth picked up in December and wage gains exceeded expectations in a mostly solid report that included some caveats about the strength of the labor market.
Non-farm payrolls increased 216,000 after downward revisions to the prior two months, a Bureau of Labor Statistics (BLS) report showed Friday. The unemployment rate held at 3.7 percent, while average hourly earnings rose 0.4 percent from a month earlier.
| Metric | Actual | Median estimate |
|---|---|---|
| Change in payrolls (month-over-month) | +216,000 | +175,000 |
| Unemployment rate | 3.7% | 3.8% |
| Average hourly earnings (month-over-month) | +0.4% | +0.3% |
The December figures cap a year in which the labor market moderated from its breakneck post-pandemic recovery without sinking into the downturn that was widely forecast earlier in 2023. Despite Federal Reserve interest rates reaching a two-decade high, the resilience in jobs has fueled steady consumer spending and healthy economic growth even as inflation has slowed.
Nevertheless, some analysts said parts of the report signaled underlying weakness, highlighted by a steep drop in the labor-force participation rate.
While Treasury yields rose following the jobs data, as traders pulled back from near-certain bets on a Fed rate cut in March, those moves reversed after a private survey on service industries suggested that businesses were aggressively shrinking payrolls.
“The overall picture is of a steady job market that is gradually cooling off,” said Kathy Jones, Charles Schwab’s chief fixed-income strategist. “But the rise in average hourly earnings could keep the Fed on hold longer than the market is pricing in.”
The advance in payrolls was led by healthcare, government, construction, and leisure and hospitality. A measure of the breadth of job gains picked up.
But the participation rate—the share of the population that is working or looking for work—fell by 0.3 percentage point, to 62.5 percent, the largest monthly drop in nearly three years. The decrease was concentrated among younger and older cohorts. For those ages 25 to 54, participation eased 0.1 point.
It’s also taking longer for unemployed Americans to find work, and the number of full-time employees dropped by the most since April 2020. Moreover, the data indicated a decline in temporary-help employment—often seen as a harbinger of recession—to the lowest since May 2021.
What Bloomberg Economists Say…
“The only piece of good news from December’s jobs report is the surprisingly high headline non-farm payroll print. The rest of the report is permeated with evidence of a fast-cooling labor market: the largest drop in household employment since April 2020, a spike in the duration of unemployment spells, a drop in labor participation, more temp workers unable to find jobs, more people taking part-time work for economic reasons, and a decline in working hours.”
— Anna Wong, Eliza Winger & Estelle Ou
Central bankers are paying close attention to how labor supply and demand dynamics are impacting wage gains. Friday’s report showed average hourly earnings increased 4.1 percent from December 2022. Earnings for nonsupervisory employees, who make up the majority of workers, rose 0.3 percent from November and 4.3 percent from a year earlier, though the end of the United Auto Workers strike provided a boost.
The jobs report is made up of two surveys—one of businesses and the other of households. The data incorporated annual revisions to the household survey data, which informs statistics like the unemployment rate and participation rate, but they didn’t change the overall employment picture.