Payrolls growth in December largely mirrored the job gains for the whole of 2023. Government and healthcare hiring remained solid. Construction payrolls continue to trend higher, a bullish signal for the economy. There was an upturn in technology hiring in Q4 too. To be sure, response rates for BLS surveys have been falling sharply. But if anything, this should increase the weight afforded to the claims data, which have been remarkably strong.
Growth in the civilian labour force confounded expectations in 2023, rising by an average of 204k/month. A strong rise in net immigration helped to keep the unemployment rate from plumbing new lows. The Department of State issue a “record-breaking 442,000 visas to H-2A and H-2B temporary workers in 2023”. They also “issued 590,000 nonimmigrant and immigrant visas—the most ever—to high-skilled workers and executives in sectors ranging from emerging technology to healthcare.” A boost to the supply side was an underappreciated factor in 2023.
On the other hand, the strong recovery in labour force participation rates since the pandemic, may be running its course. The prime-age participation rate reached a two-decade high of 83.48% in September but has since slipped to 83.15%. There is a limit to how many workers the tight labour market will pull in from the sidelines. The headline participation rate, forecast to keep falling due to demographics, could settle back to its projected path (62.0% in 2023; 61.7% in 2024). This will mitigate, to some extent, the downward pressure on wages from higher immigration.
Indeed, wage pressures firmed at the backend of last year: average hourly earnings (all private workers) increased 0.44% m/m in December and by an annualised 4.31% in Q4. In services, average hourly earnings recorded their largest m/m rise (+0.47%) since July 2022, up 4.21% annualised in Q4. Core services (ex-energy) PCE inflation may not have much room to slow further. Durable goods deflation may also begin to dissipate, given the jump in freight rates and higher domestic manufacturing wages. The coming wave of ‘megafactories’ – a result of the huge build out of manufacturing capacity over the past two years – has left manufacturers bracing for a labour battle. Durable goods manufacturing employment rose by just 4.7k/month in 2023, but average hourly earnings growth for this sector accelerated to 6.10% y/y at the end of 2023.
