On The Jobs Report & Interest Rates

Ryan Heshmati

January 05, 2024

2024 has begun, and with the close of 2023 comes the December jobs report, which CNBC’s Jeff Cox notes included the addition of “…216,000 jobs for the month while the unemployment rate held at 3.7%. That compared with respective estimates of 170,000 and 3.8%.” News of the significant beat on jobs growth, along with a strong unemployment rate, broke Friday morning. On the surface, the strong labor market is a cause for rejoicing, but the implications of strong labor data are more complicated, especially in terms of the future of interest rates.

In a recent article, CNN’s Alicia Wallace points to a senior economist at ZipRecruiter, Julia Pollak, who warns that 92% of the job growth in the last six months came from just the sectors of health care, government, and leisure & hospitality, compared to 76% for the entire year. Pollak’s concern comes from the lack of “broad-based” growth that she says is typically seen in job gains. In other words, while the broader numbers were strong because of the three sectors, there may not be much growth occurring in a large number of other sectors.

Strong job growth and low unemployment may also have an impact on closely watched and heavily anticipated interest rate cuts from the Federal Reserve. If the economy’s cooling, an indication of a soft landing that the Fed would likely want to see before cutting rates, takes longer, so might getting to rate cuts. Already, though, mortgage rates are falling, with FreddieMac’s January 4th mortgage data indicating 30-year fixed rate loans have an average interest rate of 6.62%, a significant improvement from the near-8% rates seen not too long ago.

At the Federal Reserve’s December meeting, rates were held still, in what many, hoping for cuts to come, saw as encouraging. Federal Reserve Chair Jerome Powell cautioned that the 2% inflation target set by the Federal Reserve is of the utmost concern in decisions regarding rate cuts, and since inflation is still above 3%, there are still ways to go.

The United States economy moves into 2024 at a precarious time. 2024 is an election year at a moment when the nation is deeply divided and the global landscape is facing serious instability. How the labor market changes going into November, along with how interest rates affect the American consumer, who is also the voter, will certainly affect the election’s outcome and thus are worth being closely watched by all, from economists and political strategists to consumers and voters.