A year ago, the vast majority of economists were warning that the 2023 economy would be haunted by the letter R, as in RECESSION.
As it turns out, the letter was correct, the word, not so much. In retrospect, 2023 was a year of RESILIENCE for the U.S. economy, led by the pundit-defying labor market.
Throughout the year, we were waiting for the U.S. economic engine to sputter, which would in turn cause employers to quickly shed positions. But miraculously, in the third year of a post-COVID expansion, the economy was able to produce an average of 225,000 jobs per month, for a total of 2.7 million.
The year would have been considered solid in its own right, but following the two phenomenal bounce-back years of 2021 and 2022, where the economy gained 6.7 and 4.8 million jobs respectively, the 2023 performance took economists by surprise.
Thankfully, the three-year totals more than made up for the 9.4 million jobs lost in 2020.
Before we get too carried away with the 2023 results, there is some evidence that the labor market is cooling down. Monthly job creation averaged 257,000 in the first half of the year, but by the time the fourth quarter rolled around, the totals were drifting lower, to 165,000 per month (including the upside surprise of 216,000 in December.)
Despite the tapering off, 165,000 is not too shabby. According to Elise Gould, the senior economist at the Economic Policy Institute, the Q4 monthly average exceeds “what’s necessary to keep up with working age population growth.”
The recent data about job openings reveals a similar pattern of a softening, not cratering labor market.
Job openings fell to 8.79 million in November, significantly lower than the peak of 12 million in March 2022, but still above the 7 million seen prior to COVID in January 2020.
Additionally, as workers sensed that the job market is not quite as strong as it was, fewer were willing to call it quits. The private sector quits rate has now slid below its pre-pandemic peak.
As the labor market slows down, it is expected that wages will eventually follow. But so far, wage growth has remained elevated and through December, average annual wages were 4.1 percent higher from a year ago. Given that the headline inflation rate in November was 3.1%, that means that workers are better able to absorb current price increases.
But if you didn’t snag a big raise starting in mid-2021, when global supply chain pressures, along with material and labor shortages, and lots of government stimulus caused inflation to spike, your income likely did not keep pace with the recent sticker shock seen in almost every part of the economy.
Prices are still up by almost 20% from where they were at the end of 2019, which has caused many Americans to spend down savings and accumulate credit card debt.
There should be better news about inflation in the weeks and months ahead. According to analysts from Capital Economics, “The great inflation surge will end. Inflation cycles are still being driven heavily by pandemic-related supply distortions…But 2024 is likely to be the year where core inflation finally moves back towards (global) central banks’ comfort zone of around 2%.”
There’s one more application of the word resilience and that is to all of us.
We have endured a grueling four-year COVID roller coaster and yes, we probably went a little nutty with our spending over the past year, but as we enter 2024, I am hopeful that we are able to moderate and modulate ourselves and adapt to more normal conditions.
Jill Schlesinger, CFP, is a CBS News business analyst. A former options trader and CIO of an investment advisory firm, she welcomes comments and questions at [email protected]. Check her website at www.jillonmoney.com.