Surge in openings, dip in resignations: Is US job market shifting gears?

The US has seen unemployment below 4% for 23 straight months while jobless claims remain near historic lows, underscoring the economy's continued resilience.

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The US job market demonstrated remarkable resilience in December 2023, with employers posting around 9 million vacancies compared to 8.9 million in November. This unexpected surge comes even as the Federal Reserve continues to raise interest rates to cool the economy and curb inflation.

The persistently tight labor market is likely to complicate the Fed's plans to start easing rates in the first quarter of 2023. Markets have priced in a rate cut as early as March, but robust jobs data may make policymakers reluctant to act before mid-year.

Despite the most aggressive rate hikes since the 1980s, borrowing costs have done little to dampen America's labor economy so far. Since March 2022, the Fed has hiked its benchmark rate 11 times to over 5% to make credit costlier for consumers and businesses.

Yet hiring remains healthy. As per Nationwide economist Ben Ayers, "Persistent demand for workers, while positive for continued economic growth, may throw a wrench into efforts to cool inflation early in 2024."

Why does the Fed expect to see the job market cool?

The Fed wants to see some moderation in 2021-22's red-hot job market to ease pressure on companies hiking wages. But vacancies only dipped from all-time highs of 7.3 million in 2021 to 4.8 million in 2022 and remained elevated at 2.7 million in December.

Unemployment has also stayed under 4% for 23 straight months. Jobless claims remain near historic lows, underscoring the economy's resilience.

December saw 239,000 more openings in professional services. Sectors like manufacturing, retail, healthcare, and finance also witnessed robust hiring demand. But vacancies fell in hospitality and wholesale trade.

Meanwhile, resignations hit a 2-year low, indicating workers' reluctance to switch jobs in a weakening economy. Despite headwinds, UPS announced 12,000 job cuts to boost efficiency, underlying corporate America's focus on controlling costs.

Rampant job creation presents a policy conundrum for the Fed. While positive for growth, it fuels wage-price spirals the central bank wants to avoid. The data signals a later-than-expected policy pivot.

For now, the US retains a strongly growing job market at odds with the desired cooling. The Fed faces tough choices balancing economic stability and inflation control in 2023.