The U.S. labor market has just completed a year in which many thought it would be heading into recession, with the highest 12-month payrolls in a decade.
Including the unexpectedly strong December report, the U.S. labor market added nearly 2.7 million total jobs in 2023.
Excluding the large rebound rebound from pandemic-era layoffs and rehiring in 2021 and 2022, employment growth in the most recent year was the strongest since 2015 and the third-highest since 2000.
“A key reason why economic activity in the U.S., and indeed globally, exceeded expectations was the fact that labor market resilience was a key feature of the economic landscape,” Greg Daco, chief economist at EY, told Yahoo told Finance. “Companies and business executives were intensely focused on ensuring they had the right talent to navigate this highly unusual period of impact.”
Earlier this year, many economists believed the Federal Reserve's aggressive interest rate hikes would slow the labor market as companies seek to cut expenses and protect profits as the cost of capital rises. was. But that didn't fully materialize.
“If you look at these very rapid interest rate hikes, we think that means we're going to see this kind of devastating impact on the economy,” Thomas Simmons, U.S. economist at Jefferies, recently told Yahoo Finance. I guess so,” he said.
“But in reality, both the household and business sectors are much more insulated from rate hikes than they appear, given how they finance their activities, and certainly much more so than in past rate hike cycles.”
This unusual response to rate hikes, combined with employers struggling to rehire workers post-pandemic, created an economic rarity. After the most aggressive federal rate hike cycle in decades, the unemployment rate is roughly unchanged from where it was when the Fed began raising rates in March 2022.
The unemployment rate at the end of 2023 was 3.7%, slightly higher than the March 2022 level of 3.6%. The average unemployment rate this year is 3.6%, matching the 2022 reading, the lowest since 1969.
We entered 2023 in a difficult and uncertain labor market.
Sectors such as leisure and hospitality, government, and healthcare were severely impacted during the pandemic but were still rebuilding throughout the year. This recovery, along with more workers joining the workforce, contributed to the incredible increase in employment.
With bonuses and other lavish incentives driving job growth, some wondered whether all Americans would ever go back to work. They did so, contributing to the fastest labor market recovery in history.
In fact, the share of prime-age workers in the labor market will reach an annual average of 83.3% in 2023, the highest average in 21 years.
Bank of America Chief U.S. Economist Michael Geipen recently told Yahoo Finance when explaining why the economy outperformed in 2023, saying, “A continued recovery in labor force participation means… , the numbers are huge.”
Another narrative about the labor market also did not materialize.
At the beginning of 2023, there was a belief that a slowdown in the labor market would push the economy into recession, as fewer jobs would reduce consumer disposable income that supports economic growth. But that, too, did not fare well in a year defined by strong consumer spending.
And some of that spending has been driven by solid wage growth.
Average hourly wage growth in 2023 ended at 4.3%, the third highest total since 2008.
Josh Schafer is a reporter for Yahoo Finance.
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