US employers add a surprisingly strong 216,000 jobs in a sign of continued economic strength

WASHINGTON (AP) — The nation’s employers added a robust 216,000 jobs last month, the latest sign that the American labor market remains resilient even in the face of sharply higher interest rates.

Friday’s government report showed that December’s job gain exceeded the 173,000 that were added in November. The unemployment rate was unchanged at 3.7% — the 23rd straight month that joblessness has come in below 4%.

Some details of the report, though, may disappoint the inflation fighters at the Federal Reserve, who might now be inclined to delay any cuts in their benchmark interest rate. Average hourly wages rose 4.1% from a year earlier, up from a 4% gain in November, which could make it harder for the Fed to slow inflation back to its 2% target.

Still, taken as a whole, the December jobs report reflected a healthy economy, with steady job growth, rising wages and cooling inflation. It provided the latest evidence that the Fed may be able to achieve a notoriously difficult “soft landing,” in which the central bank would conquer inflation without causing a steep recession.

Yet despite the low unemployment and easing inflation, polls show that many Americans are dissatisfied with the economy. That disconnect, which will likely be an issue in the 2024 elections, has puzzled economists and political analysts.

A key factor is the public’s exasperation with higher prices. Though inflation has been falling more or less steadily for a year and a half, the lingering financial and psychological effects of the worst bout of inflation in four decades have soured many Americans on the economy. Prices are still 17% higher than they were before the inflation surge began and are still rising.

Pollsters and economists say there has never been as wide a gap between the underlying health of the economy and public perception. A poll conducted in November by The Associated Press-NORC Center for Public Affairs Research, about three-quarters of respondents described the economy as poor. Two-thirds said their expenses had risen.

Asked why many Americans remain dissatisfied by the economy, Acting Labor Secretary Julie Su said Friday that “part of the unfortunate reality is we live in polarized times.’’

Many of the Biden administration’s domestic policies, including its investment in infrastructure, are “wildly popular,” Su said in an interview with The Associated Press.

Despite their stated discontent with the economy, Americans have kept spending. Average hourly pay has outpaced inflation over the past year, leaving consumers with more money to spend. Indeed, as they did for much of 2023, consumers, a huge engine for U.S. economic growth, hit the stores in November, shopped online, went out to restaurants or traveled.

Friday’s jobs report did contain some cautionary notes. Paul Ashworth, chief North America economist at Capital Economics, noted that the government revised down its previous estimate of job gains for October and November by a combined 71,000. And just as in November, December’s job growth was concentrated in just a few industries: Leisure and hospitality companies added 40,000, healthcare 38,000 and governments 52,000.

Indeed, from October through December, private-sector employers have added just 115,000 jobs a month, the lowest three-month average since companies were laying off workers in mid-2020 during COVID-19 lockdowns.

In addition, the proportion of people who either have a job or are looking for one fell in December to 62.5%, the lowest level since February. The Fed prefers having more people in the labor force to help ease pressure on employers to sharply boost pay to attract or retain workers. Companies typically pass their higher labor costs on to consumers by raising prices. In December, the number of Americans in the labor force actually fell by 676,000, the sharpest such drop since January 2021.

Fed Chair Jerome Powell had warned of hard times ahead after the central bank began jacking up interest rates in the spring of 2022 to attack high inflation. Most economists predicted that the much higher borrowing costs that resulted would cause a recession, with layoffs and rising unemployment, in 2023.

Yet the recession never arrived, and none appears to be on the horizon. The nation’s labor market is still producing enough jobs to keep the unemployment rate near historic lows. For all of 2023, employers added 2.7 million jobs, a healthy gain but down from 4.8 million jobs added in 2022.

“I anticipate 2024 is going to continue to be a bit of a (job) candidate-driven market, with more openings than we have candidates,’’ said Amy Glaser, senior vice president at the staffing firm Adecco.

Still, Glaser suggested, as hiring slows, employers won’t likely have to resort to the signing and retention bonuses that were needed in the past few years to attract or keep employees.

Since March 2022, the Fed has raised its benchmark interest rate 11 times, lifting it to a 22-year high of about 5.4%. Those higher rates have made borrowing costlier for companies and households, but they are on their way toward achieving their goal: Defeating inflation.

Consumer prices were up 3.1% in November from a year earlier, down drastically from a four-decade high 9.1% in June 2022. The Fed has been satisfied enough with the progress so far that it hasn’t raised rates since July and has signaled that it expects to make three rate cuts this year.

Still, Friday’s robust jobs and wage figures could lead the Fed to push back the start of any interest rate cuts if it decides that inflation will take longer to tame.

“Today’s report speaks to the bumpy road ahead for the Fed’s journey back to 2% inflation,″ said Andrew Patterson, senior international economist at Vanguard.

Patterson suggested that the Fed might have to wait for the second half of the year to start cutting rates, longer than many investors had expected.

In the meantime, many employers are still finding it hard to fill jobs. They include Isidore Kharasch, who runs Hospitality Works, which provides consulting services to restaurants, bars and hotels.

Kharasch said his restaurant clients are finding it easier to find servers than they did a year ago. But hiring culinary workers, including chefs and front line cooks remains difficult. Many such workers didn’t like their hours and have taken other types of jobs. That trend, Kharasch said, has forced some restaurants to simplify menus or reduce their selection.

“It’s constantly adjusting the menu to fit where our staff is at any one time,” he said.

Kharasch said he thinks the minimum wage increases that are taking effect this year in some states will result in more automation, increased prices and a reduction in hours of operation to save money. Beginning April 1, California will require fast food companies to pay their workers at least $20 an hour.

Krystle Phillips, owner of Roll Ice Cream LLC in St. Petersburg, Florida, which sells rolled ice cream machines, ingredients and supplies to ice cream trucks and stores, is struggling to find workers willing to work full time. Job candidates are demanding higher pay.

Short of help, Phillips, who considers herself an expert in refrigeration and logistics, has had to get up to speed on writing recipes and accounting.

“It’s been hard to hire these specialized positions,’’ she said.

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AP Retail Writer Anne D’Innocenzio contributed to this report from New York.