From More Revisions to Higher Government Payrolls, Latest Jobs Report Offers Worrying Trends in 2024

A hiring sign is displayed at a restaurant in Prospect Heights, Ill., on April 4, 2023. Nam Y. Huh /Reuters

News Analysis

The Biden administration is championing the news that the U.S. economy created 216,000 new jobs in December, and the unemployment rate remained below 4 percent for the 23rd straight month, with officials suggesting that the country has achieved a soft landing.

However, economists who are digging deeper into the monthly Bureau of Labor Statistics (BLS) jobs report are noting concerning trends throughout the labor market.

Government Payrolls

In December, the government was the No. 1 job creator, adding 52,000 new positions and accounting for one-quarter of all new jobs.

Last year, the government created 676,000 new jobs, representing about a quarter of job creation. The government produced an average of 56,000 jobs a month, more than double the average monthly gain of 23,000 in 2022, the BLS noted in its report.

New government jobs outnumbered new jobs in health care (600,000), leisure and hospitality (367,000), construction (171,000), retail (43,000), and manufacturing (1,000).

This development is negatively affecting the private sector, according to RedBalloon CEO Andrew Crapuchettes.

Twenty-five percent of this report’s job gains come from the government.

“That’s an amazing statistic. Government jobs are eating the private sector alive,” he said.

Could government payrolls surpass private-sector employment? Although many of the public sector jobs have been recovered from the pandemic, recent end-of-year data did not provide much optimism for other industries.

The Institute for Supply Management’s Services Purchasing Managers’ Index (PMI), a summary of whether market conditions are expanding or contracting, tumbled in December and clocked in at 50.6—anything below 50 indicates contraction. The most notable component of the PMI was the collapse in services employment, which was the first reduction in seven months and the sharpest drop since July 2020.

The S&P Global Manufacturing PMI reported the third consecutive monthly drop in the employment sub-index.

“The slowdown is spreading to the labor market,“ Chris Williamson, the chief business economist at S&P Global Market Intelligence, wrote in a note. ”Payrolls were cut for a third month running as increasing numbers of firms grew concerned about the development of excess operating capacity. The fourth quarter has consequently seen factories reduce employment at a pace not seen since 2009 barring only the early pandemic lockdown months.”

Dropping Out

The labor force participation rate slumped hard last month. The measurement, a share of the civilian working-age population employed or searching for a job, tumbled to 62.5 percent, from 62.8 percent in November. That was the lowest reading since February and down 676,000 monthly.

It was also below the pre-pandemic level of about 63.5 percent.

The employment-to-population ratio for employees aged 25 to 54 tumbled in December.

Household survey data, a component of the BLS’s monthly jobs report that counts individuals with jobs only once, highlighted that the number of employed workers collapsed by 683,000 workers, the largest decline since the country was shut down.

Economists note that the number of people dropping out of the workforce is artificially lowering the unemployment rate.

In addition to more people exiting the labor market, the number of full-time jobs cratered at record levels. According to BLS data, the number of full-time jobs plummeted by more than 1.53 million to 133.2 million. This was also the sharpest tumble since the COVID-era crash of nearly 15 million positions.

At the same time, the number of part-time positions climbed by 762,000 to 27.794 million, the highest level since March 2018.

Meanwhile, a record number of people are working two or more jobs. In December, there were a record 8.565 million multiple jobholders, up 222,000 from the previous month.

All of these figures from both the establishment and household surveys suggest jobs are “way below trend, bearing witness to the number of missing workers,” E.J. Antoni, a Heritage Foundation economist, said on X, formerly known as Twitter.

Revisions

Revisions have been a dominant theme of the employment data over the past 12 months. November’s jobs report was revised down by 26,000 to 173,000. The October jobs data was also adjusted lower by 45,000 to 105,000.

In total, 2023 saw revisions totaling 488,000. The final tally could be higher if the BLS revises the December payrolls report next month.

“Repeated downward revisions of previous months in ‘23 made initial job gains look larger than they were,” Mr. Antoni added on X.

Despite the reporting that the December jobs figures topped the consensus estimate, it was a miss because of the two-month downward revisions, Peter Schiff, the chief economist and global strategist at Euro Pacific Capital, said.

“So the report is not a beat, it’s another miss. Dec.’s number is likely to be revised lower next month,” he said on X. Ten “of the last 11 jobs reports have been revised sharply lower. What are the odds that’s random? Try tossing a coin 11 times and see how often either heads or tails come up 10 times out of 11 tosses?”

‘Worse Than Headline Numbers Indicate’

A chorus of economists and market analysts note that the December jobs report was worse than the headline numbers.

With revisions being prevalent over the past year, economist Mike Shedlock is already looking to the January jobs data.

“A decline in full-time employment of 1.5 million is remarkable. This series is heavily revised so let’s see what January brings,” he wrote. “The continued dependence on government jobs, up another 52,000 in December, also masks weakness.”

But can U.S. labor stay resilient in 2024?

Preston Caldwell, the chief economist at Morningstar, said he expects the first half of 2024 to see a slowdown in employment as GDP growth sputters.

“As economic growth reaccelerates over the next couple of years, we expect the labor market recovery to resume, with the unemployment rate falling back,” Mr. Caldwell wrote in a 2024 outlook report.

“We remain upbeat on labor force participation gains. Although the gains we expect after 2024 look modest, they’re actually quite optimistic when you consider aging demographics.”

Fed Chair Jerome Powell has said that the economy needs to experience below-trend growth and that labor conditions need to soften to achieve the 2 percent inflation target. Digging deeper inside the BLS figures might support many expectations that the red-hot job market will continue to slow in the coming year.