US Job Growth Surges by 223,000 in December 2023, Unemployment Falls to 3.5%

December 2023 saw the US economy create 223,000 new jobs, surpassing forecasts of 200,000, while unemployment unexpectedly declined to 3.5%.

The US labor market demonstrated notable strength in December 2023, adding 223,000 jobs — outpacing the anticipated 200,000 increase. Although this marks the slowest monthly growth in two years, it suggests the Federal Reserve’s efforts to tame inflation through interest rate hikes are making progress. The unemployment rate dropped to 3.5%, matching lows last seen in June and September, while wage growth moderated.

Average hourly earnings increased by 0.3% month-over-month, down from 0.4% in November. Year-over-year wage growth slowed to 4.6% from a revised 4.8%. The average workweek for private sector employees slightly decreased to 34.3 hours from 34.4, labor force participation remained steady at 62.3%, and the employment-to-population ratio rose marginally to 60.1%.

The latest Bureau of Labor Statistics report highlights the Fed’s balancing act: cooling inflation without triggering a recession. Despite global economic uncertainties, the US job market remains resilient. Federal Reserve officials emphasize their commitment to controlling the fastest inflation surge in four decades.

The Federal Open Market Committee is set to meet January 31 to February 1, with expectations of a 25 basis point rate hike, pushing rates to a 4.5%–4.75% range. Analysts predict up to three rate increases early this year, aiming for a peak rate near 5.25%–5.5%, as the Fed strives to moderate job growth without destabilizing the economy.

Some market experts remain optimistic, viewing peak inflation and interest rates as catalysts for economic and market recovery in 2023. Brett Ewing, chief market strategist at First Franklin Financial Services, noted, “We believe inflation has peaked, and interest rates are likely to fall, providing strong tailwinds for growth.”

Key Highlights

• December 2023 job additions totaled 223,000, exceeding expectations but marking the slowest growth since December 2020.
• Unemployment rate declined to 3.5%, below the forecasted 3.7%, matching June and September lows.
• Strong job gains were seen in leisure and hospitality, healthcare, social assistance, and construction sectors.
• Average hourly earnings rose 0.3% in December, slowing from November’s 0.4% increase.
• Labor force participation remained stable at 62.3%, with a slight increase in employment-to-population ratio.
• The robust hiring pace may influence the Federal Reserve to consider more aggressive rate hikes.

Sector-by-Sector Job Growth

Leisure and hospitality led job gains with 67,000 new positions, including a 26,000 increase in food services and drinking establishments, as the sector continues recovering from pandemic lows. Employment in this sector remains 5.5% below pre-pandemic levels from February 2020.

Healthcare added 55,000 jobs, driven by 30,000 new roles in ambulatory care services and 16,000 in hospitals. The sector’s average monthly job growth in 2023 was 49,000, significantly higher than 2022’s 9,000 monthly average.

Construction and social assistance sectors added 28,000 and 20,000 jobs respectively. Smaller gains were recorded in manufacturing, retail trade, and transportation and warehousing. Government employment saw a modest increase of 3,000 jobs, while professional and business services declined slightly by 6,000. Other sectors such as wholesale trade, information, and financial activities remained mostly unchanged.

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