It’s hard not to sound like a broken record when talking about the labor market. Each report or presentation begins with a version of “once again, job gains exceeded expectations last month.” The same is true for February, when we added 275,000 new jobs, well above the 200,000 expected.
However, job gains exceeding expectations and an unemployment rate near historic lows aren’t translating to optimism.
Normalization might feel more like turbulence than a soft landing
It’s clear that sentiment about the labor market and the lived experiences of job seekers and business leaders, isn’t matching up with headline numbers. Hiring has normalized from record levels in 2021 and 2022, and for some, that’s created the feeling of turbulence rather than a soft landing.
In the five years leading up to the pandemic, from 2014 through 2019, the economy averaged just over 2.4 million new jobs added yearly. Following a loss of nearly 22 million jobs in March and April of 2020, hiring began to rebound at a record pace.
From April 2021 to December 2022, we averaged 7.1 million new jobs added yearly. In 2023, we added just over 3 million jobs; in February 2024, the 12-month total was 2.7 million.
We are adding jobs at a healthy pace that would have been considered very strong before the pandemic, but it’s less than half the pace from 2021 and 2022. And few have been more impacted by this whiplash than HR leaders and recruiters.
Rising unemployment means a tougher market for job seekers
In February, the unemployment rate peaked at 3.9% from 3.7% in January. February’s unemployment rate is the highest in two years but remains low by historical standards. For context, the average unemployment rate in the five years before the pandemic was 4.4%.
This increase in the unemployment rate to two-year highs was driven by two factors, each with different implications for the labor market. Starting with the bad news – there was an increase in the number of unemployed workers. But for the good news – the increase in unemployed workers was nearly offset by new entrants to the labor force, which indicates that workers still have some confidence in their ability to find a job.
For businesses, it should be a bit easier to hire this year. But unfortunately, job seekers may have a harder time landing a new job.
Big revisions highlight challenges for some locations
Each year, the Bureau of Labor Statistics, the agency responsible for reporting on employment and wages, provides revisions for the previous year’s job gains. This year, some metro areas saw substantial changes to the previously reported totals 2023.
The major area that stands out is Los Angeles, not in a good way. Average annual employment in Los Angeles was more than 120,000 lower than the original estimates suggested, and the metro’s average annual employment growth was revised downward from 2.3% to just 0.4%.
Other major metros – San Francisco, Boston, Dallas, and Seattle – faced substantial downward revisions, with average annual employment around 40,000 to 60,000 below previous estimates. All but Dallas saw their relative growth nearly wiped out on a relative basis.
Dallas stands out in terms of its strong labor market performance in 2023. Despite major downward revisions, the metro saw impressive growth on an absolute and relative basis in 2023.
But there are still reasons to be optimistic about 2024
The labor market remains strong despite the challenges many workers and businesses face based on their location or industry. Wage growth has remained above the inflation rate for several months, so consumers should start feeling some relief soon.