Surging Job Market Could Prove Costly for Households and Businesses

WASHINGTON (AP) — The recent surge in U.S. job growth and a decline in unemployment rates represent an unexpected strength in the economy. However, this positivity may become a burden for homebuyers and businesses that were hoping for significant decreases in interest rates to make purchasing more affordable.

According to the Labor Department, employers added a substantial 256,000 jobs last month, an increase from the 212,000 added in November.

The unemployment rate, which many expected to remain around 4.2%, actually fell to 4.1% last month. Job creation was notably strong in sectors such as health care, which added 46,000 jobs, retail with an addition of 43,000 jobs, and government agencies at the federal, state, and local levels which contributed 33,000 jobs.

This latest jobs report highlights that the economy and hiring are thriving despite the high interest rates that have been present since before the pandemic. As a result, it seems less likely that the Federal Reserve will implement any interest rate cuts in the near future. The Fed had reduced rates three times last year due to concerns about a slowdown in hiring and economic growth.

The strong job figures suggest that the economy is transitioning into a stable phase post-COVID, characterized by solid growth, reduced unemployment, and slightly elevated inflation.

Joe Brusuelas, chief economist at RSM, mentioned, “There’s just no need for additional cuts in the Fed’s rate any time soon.” He believes the economy can continue to grow at a faster rate, which is healthier, but this also risks pushing up inflation.

Brusuelas further explained that the economy will stabilize at a higher growth level, subsequently leading to an increase in inflation and interest rates compared to the relatively low rates experienced from 2000 to 2020.

The U.S. maintained a steady job creation rate throughout 2024, with approximately 2.2 million jobs added over the year. Although this figure is a decline from the 3 million jobs created in 2023 and 4.5 million in 2022, it slightly exceeds the pre-pandemic average of 182,000 jobs per month recorded during the robust economic years from 2016 to 2019.

Following the release of the December jobs data, U.S. markets experienced a decline as investors acknowledged the diminishing likelihood of further interest rate cuts. Currently, interest rates remain burdensome for consumers wanting to purchase homes, cars, or even household appliances, with mortgage rates climbing for four consecutive weeks to their highest peaks since July.

Average hourly wages saw an increase of 0.3% since November and a 3.9% rise compared to a year earlier, although this annual wage gain was slightly below economists’ expectations.

Over the past few years, the resilience of the U.S. economy and job market has surprised many experts. To combat inflation, which reached a four-decade high two and a half years ago, the Fed raised its benchmark interest rates 11 times during 2022 and 2023, bringing them to levels not seen in over twenty years.

Despite predictions of an impending recession, the economy has continued to thrive. Companies have sustained hiring and consumers have persisted in their spending habits. In fact, the U.S. gross domestic product (GDP) has expanded at a robust pace of 3% or more in four out of the last five quarters.

Inflation has also decreased from its peak of 9.1% in June 2022 to 2.7% in November. This easing in year-over-year price increases has given the Fed the confidence to reduce rates three times during the last four months of 2024.

However, Fed officials indicated in December that they plan to be more cautious regarding interest rate reductions in the upcoming year. Their current projections suggest only two rate cuts for 2025, a reduction from the four anticipated back in September. Progress in tackling inflation has stagnated recently, keeping it above the Fed's target of 2%.

President Joe Biden recently addressed the need for further actions to lower costs, stating, “We’ve made progress for working families, showing what can be accomplished when we build from the middle out and bottom up.” He highlighted measures already taken to reduce prices for prescription drugs, health insurance, utility bills, and gasoline.

Biden is handing a mostly stable economy to his successor, President-elect Donald Trump, though many citizens are still grappling with the impact of price increases over the past three years and remain skeptical about future economic conditions.

Many businesses are struggling to fill job openings, indicating a continuing demand for workers. Matt Harding, chief concept officer at Piada Italian Street Food, is optimistic about the year ahead and plans to open seven new locations, creating an additional 250 jobs. The Ohio-based fast-casual restaurant chain currently operates 58 locations and employs around 1,200 workers. To attract talent and reduce turnover, they have raised hourly wages by 35% to 40% since 2020, with starting wages reaching up to $16.45.

On the healthcare front, UCHealth, a nonprofit operating hospitals and clinics across Colorado, Wyoming, and Nebraska, reported difficulties in hiring skilled clinical staff like nurses and therapists. Angela Spinelli, UCHealth’s senior director of talent acquisition, stated that the competition for these positions remains high. Last year alone, UCHealth hired 9,400 individuals and currently has about 1,200 job vacancies. They have responded by increasing salaries and taking a proactive approach in developing their existing talent by providing education to staff wishing to transition into advanced positions.

However, job hunting can still be challenging in the current market. Mike Pincus experienced a lengthy 20-month period without work after the startup he was associated with closed down. At 55 years of age, he was eager to shift careers after spending 35 years as a personal trainer. His search was frustrating, especially with many employers relying on algorithms to filter candidates. “If a human actually looks at your resume, it’s a very quick glance over,” he commented.

Through a connection made while visiting a friend at a bike shop, Pincus applied for a managerial role at Trek in Ventura, California, and has found fulfillment in his new position since early December. “I love it,” he expressed joyfully. “I didn’t know I’d love it. I didn’t know I could do it.”

jobs, economy, interest