A Solid Labor Market — Even If It Doesn’t Feel Like It

ERE's new labor market columnist examines the latest workforce trends.

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Jan 25, 2024

Editor’s note: This article marks the first by ERE’s new labor market columnist Mallory Vachon, who is the chief economist at LaborIQ. Mallory will continue writing the column monthly, sharing insights into the labor market and workforce in ways that are most relevant to recruiting professionals. Welcome, Mallory!

Earlier this month, we got the last jobs report for 2023. The economy added a very respectable 216,000 jobs in December, and the unemployment rate held steady at 3.7%, suggesting the labor market remains tight. Wage growth ticked up to 4.1%, another sign that the labor market has remained strong.

Once again, the labor market outperformed expectations, but it’s hard to deny there’s an uneasiness out there for many job seekers and businesses.

A Year That Defied Expectations

We’ll get into the reasons for pessimism in a moment, but let’s start by rewinding to this time last year. Heading into 2023, a lot of conventional wisdom assumed a recession was all but inevitable. I was a little more skeptical that we’d see a slowdown of that magnitude, but I’ve still been surprised at the labor market’s resilience.

Across the board, labor market and economic headline statistics exceeded expectations in 2023.

Last year, the consensus for an optimistic scenario was around 1.2 million jobs gained, or around 100,000 net new jobs added per month. Well, we ended 2023 more than doubling those expectations, adding 2.7 million new jobs, and averaging 225,000 jobs each month last year.

At the start of 2023, headlines focused on high-profile layoffs and expectations that the unemployment rate would reach 4% — even 4.5% or higher — by the end of the year. But we closed out 2023 with unemployment at 3.7%.

Yes, the unemployment rate increased from 3.4%, a 70-year historic low, in January of last year. But an unemployment rate of 3.7% suggests that the cooling labor market hasn’t led to large increases in layoffs or unemployment. For context, the unemployment rate averaged 4.4% from 2015 through 2019, when the labor market was very strong.

Another reason we haven’t seen a big uptick in unemployment is that layoffs were far lower than projected last year. They remain well below the pre-pandemic average. We ended 2023 with just shy of 18 million total layoffs, 7 million below the 25 million layoffs expected.

While layoffs are challenging for employees and businesses alike, the expectations for 2023 were much more dire than the reality.

Diverging Labor Market Perceptions and Experiences

So 2023 defied expectations, but why doesn’t everyone feel the strong headline numbers? This topic has come up before in this column: It comes down to industry.

Last year, just three sectors — government, healthcare and social assistance, and leisure and hospitality — accounted for 3 in 4 new jobs created. The healthcare sector benefits from the strong tailwinds of an aging population which is driving demand. For government and leisure and hospitality, these industries faced a more delayed recovery and now benefit from a resilient economy.

Outside those industries, it may seem that your business is more static in terms of hiring plans, or just treading water. Compared to the hot labor market of 2021 and 2022, it could even feel like going backward.

And for some industries, especially those tied to the housing market or technology, there have been persistent job losses. Luckily, both of those sectors have started to see some improvement in recent months.

2024 Forecast

Increasingly, it looks like we’ll dodge a substantial downturn in 2024. There are a few caveats to that statement, but if we stay on the current trajectory — and all indications right now point to that being the case — we should end the year without a recession.

Just three months ago, when the last Wall Street Journal economist survey was released, nearly half of all those surveyed projected a recession in the next 12 months. When the most recent survey was published on Jan. 14, only one-third of economists projected a recession in 2024.

However, commenting on the labor market outlook for 2024, a recent Wall Street Journal article headline read: “It Won’t Be a Recession — It Will Just Feel Like One.” This may not come as a surprise if you’ve been reading this column over the past several months, but the reason 2024 might feel like a recession all boils down to industry.

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