How healthy is the US labor market?

On the surface, the December employment report released in early January looked strong. Headline job growth of 216,000 is a robust figure that exceeded the Bloomberg consensus estimate of 170,000. The unemployment rate held steady at 3.7% and average hourly earnings surprised to the upside, growing 0.4% month over month and 4.1% year over year, relative to expectations of 0.3% and 3.9%, respectively.

In its January Labor Market Insights report,Labor Market Insights, NCCI, January 5, 2024. it remained upbeat about the health of the labor market following the December employment report.

In this Economic Outlook for Q4 paper, NCCI will discuss the reasons for its relatively favorable view, detailing the evolution of the labor market in 2023 and why it remain positive on the labor market and the economy heading into 2024.

In 2023, the economy added a net 2.7 million jobs. This is a significant slowdown after 2021 and 2022 saw net job gains of 7.3 million and 4.8 million, respectively.

But these years’ growth partially reflects a bounce back after the economy lost 9.3 million jobs in 2020. In the five years prior to the pandemic, the economy added an average of 2.3 million jobs per year. As we entered (or at least approached) a “new normal” in 2023, it was natural to expect employment growth to slow back towards a steady-state pace.

Indeed, NCCI expects that employment growth will continue to slow in 2024 as the labor market continues to approach a more balanced state of supply and demand. But that slowing is not necessarily a bad thing.

In 2023, there were numerous downward revisions to employment data, but NCCI does not view this as a major indicator of labor market weakness. Establishment survey data from the monthly employment report that the Bureau of Labor Statistics produces is notoriously prone to near-term revisions. Since more accurate employment counts are not available until multiple quarters later, NCCI accepts the inadequacies of the survey data to gain a real-time assessment of how the economy is evolving.

While 2023 revisions have mostly been in one direction (down), post-revision data remains consistent with the story of a labor market that has mostly recovered from the pandemic and is experiencing slower, steadier growth.

On average, the initial labor market reports in 2023 overestimated employment growth by about 37,000 jobs per month. Had the initial print been correct throughout the year, 2023 would have seen a net gain of 3.1 million jobs, indicating an even stronger labor market than already suggested by the 2.7 million adds.

At an industry level, the payroll picture looks much healthier than the employment picture. Thanks primarily to continued elevation in wage growth, nearly all sectors experienced payroll growth close to or above 5% in 2023. Overall payroll gains, a key metric for workers compensation, remained robust.

The full report is available to learn more.