Surging Job Market Poses Challenges for Households and Businesses

WASHINGTON — The U.S. job market showed unexpected strength last month as job growth surged and unemployment rates fell. This robust performance could have significant implications for homebuyers and businesses that were hoping for rapid interest rate cuts to make purchasing items, from refrigerators to homes, more affordable.

During the last month, employers added a total of 256,000 jobs, a notable increase from the 212,000 jobs added in November, according to the Labor Department's report released Friday.

The unemployment rate, which many expected to stay around 4.2%, instead dropped to 4.1%. Notable sectors contributing to this job growth included health care, which added 46,000 jobs, retail, which saw an increase of 43,000 jobs, and government agencies across federal, state, and local levels, which collectively added 33,000 jobs.

This year-end jobs report highlights that the economy has continued to perform well, with slow and steady hiring taking place despite interest rates being higher than they were prior to the pandemic. Consequently, the likelihood of the Federal Reserve cutting borrowing costs soon seems less probable. Last year, the Fed reduced interest rates three times, largely due to concerns that economic growth was dwindling.

Overall, these strong job statistics indicate that the economy is shifting into a stable phase post-COVID, characterized by consistent growth, low unemployment rates, and slightly elevated inflation. According to Joe Brusuelas, chief economist at RSM, an accounting and tax advisory firm, the current economic climate demonstrates that there is no immediate need for further cuts in the Fed's interest rates.

Brusuelas mentioned that productivity enhancements are helping the economy grow at a quicker rate compared to what has been experienced since the Great Recession 16 years ago. A low unemployment rate typically supports healthy consumer spending, but the increase in demand could also lead to rising inflation rates.

“We can expect the economy to grow at a higher level now, which suggests that inflation and interest rates will remain elevated compared to the previous two decades,” Brusuelas stated.

Throughout 2024, the U.S. has consistently added jobs, totaling 2.2 million positions this year. This figure is a decline from the 3 million jobs created in 2023, 4.5 million in 2022, and a record-breaking 6.4 million in 2021 during the economic recovery from overwhelming COVID-19 job cuts. However, the average number of jobs added per month last year was 186,000, which lightly surpasses the pre-pandemic average of 182,000 seen between 2016 and 2019.

The release of December’s job numbers caused U.S. markets to decline as investors interpreted this data as reducing the chances for more interest rate cuts. Unfortunately, for everyday Americans looking to buy homes, cars, or household appliances, interest rates remain painfully high, with mortgage rates climbing for four consecutive weeks to their highest point since July.

Average hourly wages have increased by 0.3% from November and by 3.9% from a year prior, although this yearly increase fell short of economists' predictions.

In recent years, the strength of the U.S. economy and job market has caught many off-guard. In response to inflation peaking at a 40-year high, the Federal Reserve raised its benchmark interest rate, the fed funds rate, 11 times throughout 2022 and 2023, reaching levels not seen in over 20 years. The anticipated recession that many were expecting never materialized, as companies kept hiring and consumers continued spending, driving the economy forward. In fact, the U.S. gross domestic product has seen a strong annual growth rate of 3% or more in four of the last five quarters.

Inflation has also decreased from a high of 9.1% in June 2022 to 2.7% in November. This reduction in year-over-year price increases has instilled enough confidence for the Fed to implement three rate cuts within the last four months of 2024.

However, in December, some Fed officials indicated that they will proceed with caution regarding future rate cuts, now projecting only two reductions in 2025 instead of the four initially expected back in September. Progress in the fight against inflation has slowed down, and it remains above the Fed’s targeted rate of 2%.

“More needs to be done to decrease prices, but we have made efforts to lower costs for prescription drugs, health insurance premiums, utility bills, and gas prices, which will benefit families for years ahead,” stated President Joe Biden recently. “This recovery has taken hard work, but we are making progress for working families, demonstrating what’s possible when we focus on lifting up the middle class and those at the bottom.”

While President Biden is leaving a relatively stable economy for his successor, President-elect Donald Trump, many Americans have faced tough price increases over the last three years and remain generally pessimistic about their economic future.

Many companies are still in search of new workers. With optimism for 2025, Matt Harding, who is the chief concept officer at Piada Italian Street Food, has plans to open seven new locations and bring in an additional 250 employees this year. This fast-casual restaurant chain, based in Columbus, Ohio, has 1,200 employees and operates 58 stores across seven states. To combat high turnover, hourly wages have risen between 35% and 40% since 2020, reaching starting wages of $16.45 for typical roles.

Likewise, UCHealth, a nonprofit organization managing hospitals and clinics in Colorado, Wyoming, and Nebraska, is struggling to attract skilled clinical workers, including nurses and therapists. Angela Spinelli, UCHealth’s senior director of talent acquisition, noted that, “The market remains tight for these positions.” The organization, which hired 9,400 individuals last year, currently has 1,200 job openings. In response, they have raised salaries and adopted an approach of ‘growing our own’ by offering tuition assistance for employees to develop their skills.

Despite this strong job market, individuals looking for work may encounter challenges. Mike Pincus, for instance, was unemployed for 20 months following the closure of the startup he worked for. After a lengthy search and numerous frustrations, he finally found a position as a manager at Trek’s bike shop in Ventura, California, which he began in early December. “I love it,” Pincus said reflecting on his experience, “I didn't realize I would enjoy it this much.”

Reported by AP Writers Christopher Rugaber and Josh Boak in Washington, and Anne D’Innocenzio in New York.

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