The US labor market has concluded a year with one of the largest 12-month job totals seen in the previous ten years, a year that many predicted would see a recession.
With the help of an atypically robust December report, the US labor market added over 2.7 million new positions in total in 2023.
With the exception of the significant gains from the rehiring and comeback from pandemic-era firings in 2021 and 2022, the most recent year saw the strongest job growth since 2015 and the third-highest since 2000.
“Labor market resilience was a key feature of the economic landscape, which is why economic activity surpassed expectations in the US and actually, globally,” said Greg Daco, chief economist at EY, in a Yahoo Finance interview. “Businesses, business executives, were keenly focused on ensuring that they had the right talent to navigate this very unusual period of impact.”
Many analysts had predicted at the beginning of the year that the Federal Reserve’s aggressive interest rate hikes would slow the labor market as businesses moved to reduce costs and safeguard profits as capital costs rose. However, that did not materialize completely.
According to Thomas Simons, US economist at Jefferies, “you look at these very rapid rate increases, and you’re assuming that means there’s going to be these kind of catastrophic impacts on the economy,” Bloomberg Finance reported recently.
“But in reality, both the household and the corporate sector are much more insulated from rate hikes than it appeared, and certainly than they have been in previous rate hiking cycles, based on just how they fund their activity.”
Employers found it difficult to rehire workers following the pandemic, which coupled with this atypical response to rate increases produced an economic rarity. The unemployment rate stayed essentially stable from its March 2022 level during the most aggressive federal interest rate-hiking cycles in decades.
in 3.7% in the end of 2023, the unemployment rate was little higher than it was in March 2022 (3.6%). The year-over-year average unemployment rate of 3.6% is the lowest since 1969, matching the reading from 2022.
Additionally, the job economy was in a strange situation when 2023 arrived.
During the year, industries including tourism and hospitality, government, and healthcare were still recovering from the pandemic’s devastating effects. The unexpected increase in job growth was partly caused by that recovery as well as the entry of more workers into the labor force.
Some questioned whether all Americans would ever return to work given the abundance of bonuses and other expensive incentives fueling job gains. They did, and as a result, the labor market recovered at the fastest rate in history.
In actuality, the share of prime age workers in the job market reached its highest level in 21 years in 2023, with a yearly average of 83.3%.
When explaining why the economy beat expectations in 2023, Michael Gapen, chief economist for Bank of America US, told Yahoo Finance recently, “The ongoing rebound in participation in the labor force, I mean, it’s massive.” “The numbers are massive.”
There was also another story concerning the labor market that never really took off.
It was believed at the start of 2023 that a slowdown in the labor market would push the economy into a recession since consumers’ disposable income would decline as a result of less employment, which would fuel economic growth. However, that too failed to materialize in a year characterized by strong consumer spending.
Resilient salary growth also played a role in driving some of the expenditure.
In 2023, the average growth rate of hourly earnings was 4.3%, which is the third-highest amount since 2008.