Employment ends year on a high note

January 5, 2024

Payroll employment jumped by 216,000 jobs in December after rising by a downwardly revised 173,000 in November. October was also revised down. Overall payroll employment crossed its February peak in June 2022, during the peak of the hiring frenzy. We are now 3.2% or nearly 5 million jobs ahead of where we were pre-pandemic. That makes this the fastest employment recovery of the last four recessions, which goes back to 1990.

Public sector hiring accounted for 52,000 of those gains. They were largely at the local level, split evenly between public schools and other staffing positions. State and local governments were struggling to compete with the private sector during much of the recovery and only in December crossed the peak hit earlier in February 2020.

Health care and social assistance added 58,900 jobs. Aging demographics coupled with high quit rates, especially in the windup to the pandemic, led to acute staffing shortages in the health care system. Backlogs to get into doctors' offices remain long.

Leisure and hospitality added 40,000 jobs. Gains were broader based than they have been to date, with some increases in food services, accommodation and entertainment, including sport and theater venues. Thank you, Taylor Swift. Her appearance at football games has boosted attendance and the viewership of games, especially among young women.

The construction industry added 17,000 jobs, with the largest gains in non-residential building. Chip plants are still being built. The remainder was in specialty construction, which includes interior finish work and home construction.

The information sector added 14,000 jobs, mostly in motion picture and sound production. That reflects a ramp-up in projects following the actors’ strike.

Manufacturing added 6,000 jobs, most of them in heavy manufacturing outside of the vehicle industry. Vehicle inventories rose in the fourth quarter, despite strike losses. That and the delays due to reopening have put a damper on the rebound in vehicle production.

Losses were felt in transportation and warehousing. The largest loss was in couriers and messengers. The sector has contracted in six of the last seven months; it fell in eight of twelve months this past year. Warehousing was down 17 of the last 18 months. Another drop in job openings in that sector at the end of November suggests more weakness to come. The freight industry is in a recession after being a major driver of gains earlier in the recovery. The exception is air freight, which has held up much better.

Separately, professional business services, which were the largest single contributor to job gains since the onset of the recovery, posted a modest gain. Full-time hires offset a large drop in temporary hires. The sector is still down on employment from its peak in May 2023.

Average hourly earnings rose 0.4% in December, the same as in November. That translates to a 4.1% year-over-year gain, slightly higher than the 4% increase in November. That is the wrong direction for the Federal Reserve, which was hoping that wage gains would slow to the 3% range, which is more consistent with achieving its 2% inflation target. Chairman Jay Powell flagged elevated wages as a factor the Fed was watching at his press conference following the December meeting. It also came up as an upside risk to inflation in the minutes of the meeting.

Gains in nonsupervisory manufacturing wages jumped 0.9%, driven by gains in durable goods manufacturing, and surged 5.8% from a year ago. That is the strongest year-over-year gain since April 2022, which was a 40-year high. Those increases can be attributed to new UAW contracts, which went into effect during the month. Gains in the information sector also accelerated with the end of strikes. There appeared to be some spillover effects into retail as well.

One note of caution is the response rate on the payroll survey in December, which was below 50%, and the lowest since 1990. That means we could be in for another round of large revisions in January. Indeed, the household survey for the month of December reported a 683,000 drop in employment. However, nearly all of that drop was due to the 676,000 workers who left the labor force entirely. The majority of those workers were white; nearly half were over 55.

The household survey showed that the unemployment rate held at 3.7%, largely due to the loss in workers and a drop in participation in the labor force. The labor force participation rate plummeted from 62.8% in November to 62.5% in December, but one shouldn’t make too much of a one-month swing. Participation rates among prime-age workers moved up in 2023 relative to 2022.

The number of multiple job holders hit a record high, which has occurred as labor markets tightened post the 2001 recession. That is because employers are more willing to allow workers to juggle their schedules to make two jobs possible. Prior to the 2001 recession, workers didn't need multiple jobs to make ends meet. Other record highs included those voluntarily accepting part-time jobs, those out on vacation and parental leave in December.