Commentary Directory

Employment Preview: Moderating but Strong Labor Market

Jacob Hess
January 03, 2024

Another jobs report is coming this week, and it will be the biggest economic news of 2024 once it is released. However, it will be reporting on how the previous year ended and provide important context to a Fed that described job gains as having “moderated” but still “strong”. In the context of sharp monetary tightening, in 2023, that assessment is definitely fair.


In November, the establishment survey found that 199,000 jobs were added which topped both the previous month’s gain of 150,000 and the consensus estimate of 180,000. What was also noteworthy was that downward revisions were mostly inconsequential with just a -35,000 change to the September number. As these gains have moderated, the unemployment rate has started to trend upward. Despite the rate falling -0.2 ppts to 3.7% in November, it had reached 3.9% in the month before (about 0.5 ppts off the trough of 3.4% in April 2023). The Fed sees an unemployment rate of 3.8% to end 2023 which is what it has projected since September. This is significantly lower than the 4.6% projection that the Fed set in December 2022.

The consensus estimate for the nonfarm payroll increase in December 2023 sits just below the November number at 168,000 meaning that the trend of “moderating but strong” job gains is likely to continue. Analysts have also matched the Fed’s view of the unemployment rate reaching 3.8% in December. These results would be indicators of the continuation of the tight labor market where businesses are still finding their demand for labor unmet. Thus, the it is also expected that upward pressure on wages remains at the end of 2023. The consensus on that is an 0.4% MoM uptick which will push the YoY average hourly earnings gain back to 4% YoY.

An important factor in staffing levels in December is the demand for holiday shopping in the first two-thirds of the month. Mastercard reported that total holiday retail sales grew 3.1% in 2023 over 2022 with online sales up 6.3% YoY and in-store sales up 2.2% YoY. The moderate gains in consumption were likely enough to keep businesses hiring in December, but weaker in-store sales gains suggests the impact will not be large for retailers. However, food services and drinking places likely felt the need to boost their employment as holiday spending in that segment jumped 7.8% YoY. Therefore, I see the leisure and hospitality sector leading the jobs gains in the December report (around 100,000 jobs added) while the retail trade industry could lag a bit below what might be usually expected during the holiday season (around 20,000 jobs added).

In general, my expectations are that nonfarm payrolls should increase by about 150,000, and the unemployment rate should tick up to 3.8%. The latter could be a bit of an underestimation if the trend of higher participation is extended into December. November saw a strong increase of 532,000 in the labor force which pushed the participation rate up 0.6 ppts above where it was in November 2022 at 62.8%. I expect participation to continue to increase in early 2024 as consumers continue to spend down their cash stockpiles and sticky wage increases coax more people off the sidelines. This is likely one of the keys to the Fed’s path towards a looser a labor market.