By Tim Courtney, Chief Investment Officer
The 2023 job market had something for everyone in that one could take away facts from the jobs reports to make an argument for economic strength or weakness. The top-line statistics from the December jobs report tell a positive story, with approximately 216,000 jobs added (later revised upward, plus another 353,000 in January) and unemployment dropping to 3.7%.1 Workers are being pulled back into the labor force, which signals a positive sign for curbing inflation as this should help increase production. Additionally, the tight labor supply coupled with a low unemployment rate suggests resilience. Some economists are now dismissing the possibility of a meaningful recession in the near term due to the strength of the job market.2
However, assessing these job gains through a different lens could provide less enthusiasm. While the number of jobs added is encouraging, the type of jobs created may not be considered ideal for growth. A notable portion of the jobs created in 2023, especially in December, were in the government and healthcare sectors.1 Traditionally, these areas have contributed a smaller share of new job creation, but last year, they accounted for almost 50% of new jobs.3 Seeing large amounts of new government, healthcare and education jobs is not an indication of strength as they often increase even during recessions.
Likewise, the average hours worked by employees decreased by 0.2% in December (and fell again in January to 34.1 hours per week – the lowest reading since the beginning of the COVID lockdowns).1 While this may seem like a small decrease, at a national scale, it translates into a significant loss of productivity. To make up for this, workers need to be more productive, and while productivity did pick up in 2023 it did so off of a declined productivity figure in 2022.
There is also talk about job growth in the manufacturing sector – investments in projects like the Chips Act and the Inflation Reduction Act contribute to the construction of manufacturing facilities.4 However, in most cases, the government spends money on these projects, not the private sector. The reliance on government spending for job creation raises questions about the sustainability of this growth.
The most recent jobs report headlines are certainly a positive and a reason to think the fears of a strong recession are unwarranted. However, not all data points are lining up to confirm sustainable growth, as some parts of the reports may point to this growth being a product of outsized deficit spending. As is often the case, we have mixed signals and an unclear picture of what is actually happening across the world’s largest economy. The solution is to avoid making strong bets for or against the economy and remaining diversified across sectors and assets. If you have any questions, please get in touch with your Exencial advisor.
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