Resilience, Not Recession

A year ago, the vast majority of economists were warning that the 2023 economy would be haunted by the letter R, as in RECESSION. As it turns out, the letter was correct, the word, not so much. In retrospect, 2023 was a year of RESILIENCE for the U.S. economy, led by the pundit-defying labor market.

Throughout the year, we were waiting for the U.S. economic engine to sputter, in which case employers would quickly shed positions and households would suffer. But miraculously, in the third year of a post-COVID expansion, the economy was able to produce an average of 225,000 jobs per month, for a total of 2.7 million. (As a reminder, the economy lost 9.4 million in 2020, then gained 6.7 and 4.8 million respectively in 2021 and 2022.)

Before we get too carried away with the 2023 results, there is evidence that the labor market is cooling down. Monthly job creation averaged 257,000 in the first half of the year and in the final three months, it was 165,000, despite the upside surprise of 216,000 in December. According to Elise Gould, the senior economist at the Economic Policy Institute, 165,000 is a “solid” number of jobs, “exceeding what's necessary to keep up with working age population growth.”

The recent data about job openings reveals a similar pattern of a softening, not cratering labor market. Job openings fell to 8.79 million in November, significantly lower than the peak of 12 million in March 2022, but still above the 7 million in January 2020. Additionally, workers are less willing to call it quits-the private sector quits rate slid to 2.4 percent, which means it is now further below its pre-pandemic peak.

As the labor market slows down, it is expected that wages will eventually follow. But so far, wage growth has remained elevated. Through December, average annual wages were 4.1 percent higher from a year ago. Given that the inflation rate through November was 3.1 percent, that means that workers are better able to absorb current price increases.

But if you didn’t snag a big raise starting in mid-2021, when global supply chain pressures, along with material and labor shortages, and lots of government stimulus caused inflation to spike, your income likely did not keep pace with the recent sticker shock seen in almost every part of the economy.

There should be good news on that front in the weeks and months ahead. According to analysts from Capital Economics, “The great inflation surge will end. Inflation cycles are still being driven heavily by pandemic-related supply distortions. But 2024 is likely to be the year where core inflation finally moves back towards [global] central banks’ comfort zone of around 2 percent.”  

There’s one more application of the word resilience and that is to all of us. We have endured a grueling four-year COVID rollercoaster and yes, we probably went a little nutty with our spending over the past year, but as we enter 2024, I am hopeful that we are able to moderate and modulate ourselves and adapt to more normal conditions.