US Job Market Surprises With Strong December Hiring, Unemployment Rate Falls

The U.S. labor market ended 2023 on a strong note, with job growth exceeding expectations and the unemployment rate falling to 4.1%, Reuters reports. This unexpected strength reinforces the Federal Reserve's cautious stance toward further interest rate cuts.

The Labor Department's employment report, released Friday, showed nonfarm payrolls increasing by 256,000 jobs in December, significantly higher than the 160,000 economists had predicted. This marks the most robust job growth since March. Over the entire year, the economy added 2.232 million jobs.

While hiring has slowed somewhat following the Fed's aggressive rate hikes in 2022 and 2023, the labor market remains resilient, characterized by historically low layoffs. This resilience is supporting consumer spending through higher wages. The economy is currently expanding at a pace well above the Fed's non-inflationary growth rate of 1.8%.

Job gains in December were concentrated in non-cyclical industries like healthcare, which added 46,000 positions. Retail employment also rebounded, adding 43,000 jobs after declining in November. Government payrolls and leisure and hospitality employment also saw notable increases.

Despite the strong employment data, the Fed is expected to hold its benchmark interest rate steady at its upcoming meeting. The central bank has already lowered rates by 100 basis points since September, and is projecting only two additional quarter-point cuts for the entire year.

The Fed's cautious approach is linked to concerns about potential inflationary pressures stemming from President-elect Donald Trump's plans to impose tariffs and deport undocumented immigrants. These concerns were reflected in minutes from the Fed's December meeting, which noted that "most participants remarked that ... the Committee could take a careful approach in considering" further rate cuts.

Average hourly earnings rose 0.3% in December, bringing the 12-month increase to 3.9%. While business sentiment has improved following Trump's election victory, economists do not expect a surge in hiring in the near term.

The unemployment rate fell to 4.1% in December, down from 4.2% in November. The number of people who have permanently lost their jobs also decreased, while the median duration of unemployment fell to 10.4 weeks.