Robust US Labor Market in 2023: Key Highlights and Analysis
The US labor market concluded 2023 with a performance that defied recession expectations, marking one of its strongest years in the past decade. The year witnessed the creation of nearly 2.7 million jobs, an achievement surpassed only by the pandemic recovery years of 2021 and 2022 and the high job gains of 2015.
EY's Chief Economist, Greg Daco, attributed this resilience to businesses' focus on maintaining the right talent during this unusual economic period. Contrary to predictions, the Federal Reserve's significant interest rate hikes did not significantly dampen the job market. Instead, as Thomas Simons of Jefferies noted, the household and corporate sectors showed an unexpected resilience to these rate hikes.
A striking feature of 2023 was the labor market's response to the rate hikes. Despite the aggressive monetary policy, the unemployment rate remained remarkably stable, closing the year at 3.7%, barely a notch up from 3.6% in March 2022. The average yearly unemployment rate matched 2022's historic low since 1969.
The labor market's dynamics were also shaped by sectors like leisure and hospitality, government, and healthcare, which were still recovering from the pandemic's impacts. This recovery, coupled with an increased workforce participation, contributed to the surprising job gains. The year saw the prime age workforce participation reach its highest average in 21 years, at 83.3%.
The anticipated narrative of a labor market slowdown leading to a recession also did not materialize. On the contrary, 2023 was characterized by robust consumer spending, partly fueled by persistent wage growth. The average hourly earnings growth stood at 4.3%, one of the highest since 2008.
In conclusion, 2023 emerged as a year that defied many economic predictions, underlining the resilience and adaptability of the US labor market. The year's performance, marked by strong job gains and stable unemployment rates amidst aggressive interest rate hikes, reflects an economy that has navigated through unusual challenges with remarkable agility.