Surging Job Market Could Be Costly for Households and Businesses

WASHINGTON — Recent statistics show that the U.S. job market experienced a surge, with job growth increasing and unemployment rates decreasing significantly last month. This unexpected strength in the labor market may create financial challenges for homebuyers and businesses that were hoping for lower interest rates to ease the costs of buying various goods, from refrigerators to homes.

According to the Labor Department, employers added 256,000 jobs last month, a rise from 212,000 in November. The unemployment rate dropped to 4.1%, which was better than the expected figure of 4.2%. Within these new jobs, healthcare companies contributed 46,000, retailers added 43,000, and government agencies contributed 33,000 positions at the federal, state, and local levels.

The final jobs report of 2024 illustrates that the U.S. economy and hiring have managed to sustain solid growth despite interest rates being considerably higher than pre-pandemic levels. Consequently, the Federal Reserve might be much less inclined to reduce borrowing costs any time soon. The Fed had previously cut its rates three times last year, primarily to address concerns about slowing hiring and economic growth.

Overall, the solid job figures indicate that the economy is transitioning into a steady growth phase after COVID-19, characterized by higher interest rates, low unemployment, and slightly elevated inflation rates. Joe Brusuelas, the chief economist at RSM, noted that "there’s just no need for additional cuts in the Fed’s rate any time soon," emphasizing the potential for sustained economic growth.

This robust job market, fueled partly by increased productivity, suggests that the economy will grow at a higher rate compared to the years following the Great Recession. Low unemployment is also likely to drive healthy consumer spending. However, increased demand could further elevate inflation rates. Brusuelas remarked that "the economy is going to grow at a much higher equilibrium level, which implies higher inflation and higher interest rates than what we were accustomed to from 2000 to 2020."

Throughout 2024, the U.S. has consistently added jobs, totaling 2.2 million for the year. While this figure is lower than the 3 million jobs created in 2023 and the 4.5 million in 2022, it still slightly exceeds the pre-pandemic average of 182,000 jobs gained monthly from 2016 to 2019. As a reaction to the December jobs report, U.S. markets declined, signaling that the chances of further interest rate cuts have diminished. Nevertheless, the current interest rates remain burdensome for Americans looking to purchase houses, cars, or household appliances, as mortgage rates have climbed for four straight weeks, reaching their highest levels since July.

In terms of wages, average hourly earnings rose by 0.3% from November and are up 3.9% compared to the previous year. However, the year-over-year wage increase was slightly below economists' expectations.

Over the past few years, the resilience of the U.S. economy and its job market has been surprising to many. After confronting inflation that surged to a four-decade high two and a half years ago, the Federal Reserve raised its benchmark interest rate a total of 11 times in 2022 and 2023, bringing it to its highest point in more than 20 years. The anticipated recession failed to materialize; companies continued hiring, consumers kept spending, and economic momentum persisted. The U.S. gross domestic product (GDP) has expanded at an impressive annual pace of 3% or more in four out of the last five quarters.

Moreover, inflation has decreased from a peak of 9.1% in June 2022 to 2.7% in November. This reduction in year-over-year price increases instilled confidence in the Fed, leading to three rate cuts in the latter part of 2024.

However, Fed officials have suggested a more cautious approach to rate cuts this year, now projecting only two reductions in 2025 compared to the four originally anticipated in September. Progress in combating inflation has stalled lately, with inflation remaining above the Fed's target of 2%.

President Joe Biden acknowledged that while there is still work to do to lower living costs, measures taken to address prescription drug prices, health insurance premiums, utility bills, and gas prices will yield long-term benefits. He highlighted the ongoing effort in achieving a robust recovery, noting the improvements for working families achieved through strategic governance.

As Biden prepares to hand over a generally solid economy to his successor, President-elect Donald Trump, many Americans have faced the financial strain of past price hikes and hold a skeptical view of the current economic outlook.

Meanwhile, businesses continue to face challenges in finding adequate labor resources. Some, like Matt Harding, chief concept officer at Piada Italian Street Food, remain optimistic, planning to launch seven new locations and hire over 250 new employees this year. The fast-casual restaurant chain, which operates 58 stores across seven states, has seen hourly pay increase by 35% to 40% since 2020, with starting wages reaching as high as $16.45 for typical positions, aiding in employee retention.

Healthcare institutions, including UCHealth, are grappling with labor shortages, especially in skilled clinical roles such as nurses and physical therapists. Angela Spinelli, UCHealth’s senior director of talent acquisition, noted that the market for these positions remains strong. They have raised compensation and adopted strategies for internal promotion and training programs to cultivate their workforce.

Despite the job market's overall strength, individual job seekers may encounter difficulties. Mike Pincus faced an arduous 20-month job hunt after his former company shut down. At 55, he sought a new direction after spending 35 years as a personal trainer. His frustrations in the job market stemmed from a perceived reliance on algorithms by employers to filter out nontraditional candidates. Eventually, he secured a role as a manager at Trek’s bike shop in Ventura, California, a position he enjoys despite his initial hesitance about entering a new field.

Contributors to this story include reporters from various locations.

job, market, economy