Jobs data on Friday showed the US labor market is strong and resilient with wages outpacing inflation — welcome news for Americans hoping to gain more purchasing power in 2024.
The December jobs report revealed another unemployment rate below 4%, as it was two years ago, at 3.7%, the same rate as it was in November. The economy added 216,000 jobs, many of them concentrated in health care, local government, construction and social assistance, which includes child care, social workers and home care aides, according to data from the Bureau of Labor Statistics.
Democrats celebrated the news and used it as an opportunity to vent their frustration with Republicans as policymakers grapple with another potential government shutdown over U.S.-Mexico border policy and other issues. Congress set a deadline of January 19 for four government spending bills and February 2 for eight government spending bills.
President Joe Biden said Friday morning that the jobs data “confirms that 2023 has been a great year for American workers.”
“Strong job creation has continued even as inflation has fallen to the pre-pandemic level of 2 percent over the past six months…” he added.
Rep. Bobby Scott (D-Va.), ranking member of the House Education and Workforce Committee, praised the strong jobs report and said: “Now is not the time to reverse our progress in the economy.” I remain committed to opposing any effort that gambles with the lives of ordinary Americans in order to engage in political grandstanding.
Economists and data analysts provided the newsroom with their take on key stories in the report, from wages to job growth in health care.
Wage growth and cooling inflation provide relief
Wages are outpacing inflation, with average hourly wages up 15 cents and rising 4.1% over the past year, well above inflation’s 3.1%. With inflation falling fairly quickly, wages are well above inflation, economists say.
Wage growth is now well above the inflation rate, meaning people’s real purchasing power is improving, said Mark Zandi, chief economist at Moody’s Analytics.
“They bounced back in 2021 and especially in 2022 when inflation outpaced wages,” Zandi said. “And I think that’s one of the reasons why people are uncomfortable with their financial situation, but that’s improving now and improving very quickly as wage growth remains strong and steady and inflation is lower and continues to moderate.”
Low-wage workers in particular have seen increased purchasing power for longer, added Elise Gould, chief economist at the Economic Policy Institute.
“Over the past six months, the average hourly wages of private sector workers have been outpacing inflation, so their purchasing power has increased, and on average, over the past few months, we also know from other data that lower-wage workers have seen stronger wage growth,” she said. “They have been beating inflation for a much longer time. In general, purchasing power certainly increases as inflation falls faster.
Healthcare and government continue to add jobs
The government workforce grew by 52,000 people, and the majority of those jobs — 37,000 — were in local governments. According to the Bureau of Labor Statistics, average monthly job gains in 2023 were more than double the average job growth in 2022.
There still appears to be room for government employment growth to continue, Gould said.
“We still have a lot of catching up to do because when we think about government employment, it has not kept up with population growth in any way,” she said. “You would think that the services provided by the government would need to grow more. So I think there is a fair amount of scope to not return to normal in that sense.
Healthcare also continues to see job growth, which Gould expects will continue in part due to the aging population in the United States. Health care jobs rose by 38,000 jobs in December. Mobile healthcare services and hospitals added 19,000 jobs and 15,000 jobs, respectively.
Zandi believes that these sectors are mostly playing catch-up after the private sector crowded out some of these jobs during the recovery period by offering higher wages.
“Private companies were willing to pay significant wage increases to retain workers and hire new ones,” he said. “It was impossible for local governments or hospitals to keep up. But now that the private sector has fully recovered, we are now starting to see that these other sectors are able to hire again, find workers and put them on the payroll.
Economists are watching for signs of a slowdown
Economists had mixed reactions to changes in the labor force participation rate and the employment-to-population ratio, as both fell by 0.3% in December. The labor force participation rate sheds light on an economy by the percentage of working-age people in the labor force, which includes both those actively looking for work and people currently employed. The employment-to-population ratio shows the number of people employed as part of the working-age population.
Gould said she is watching this data closely to see if these changes are a cause for concern but says it is important to keep in mind that unemployment is still very low.
“Is this just a fluctuation in the series or is there something to watch for?” She said. “…It doesn’t indicate there’s a huge problem, but it’s something we want to continue to monitor. I didn’t like the decline in employment, especially early-age employment and participation in it is poor.
It’s hard to read much into any monthly change in this data so far, but the job market is slowing down a bit, Zandi said.
“I think the general pattern in the data is that the labor market is resilient, it continues to create a lot of jobs, and unemployment remains low. But it is declining. Job growth is definitely slowing down, and other measures of labor market strength are moderating,” he said. “You are seeing hours “Less work and temporary employment is declining.”
Regarding the labor force participation rate, Zandi said he doubts participation will not continue to rise.
“Boomers are retiring en masse and this will eliminate any increase in participation by other groups. Overall, I think the report is consistent with an economy that remains strong but slow and consistent with inflation returning to something we are all comfortable with.”
Trends in state wages
Data released by ADP, a payroll processing company, on Thursday confirmed Zandi’s view of a cold labor market as pay increases for people staying on the job fell in December compared to November. The average year-over-year wage change in ADP was higher in states like Montana, where wages rose 8.2%, and Idaho, where wages rose 7.5%. New Mexico and Arizona also had higher wage increases than many other states at 6.7% and 6.2%. Washington, Oregon, Wyoming, North Dakota, and South Dakota also saw wage growth during that time period.
ADP saw higher wage growth for lower-wage workers during the recovery, Liv Wang, principal data scientist at the ADP Research Institute, told US Newsroom.
“…Some states with higher percentage wage increases have lower median wage levels,” Wang added in an email. This applies to some states in both the northwest and southwest. This same trend also applies to the leisure and hospitality sector, which has been driving wage increases. But more broadly, wage gains have slowed recently, and the wage premium for changing jobs has declined.