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Stronger-than-expected employment growth in 2023 was even stronger than it seemed

US nonfarm payroll employment delivered a positive surprise in January 2024: The economy added 353,000 jobs that month—more than double the median forecast of 175,000 jobs. Another positive surprise was that past job growth reports were revised upward, showing additional signs of a strong labor market.

The ALFRED graph above shows monthly changes in nonfarm payroll employment: The red bars represent the data released last week, while the blue bars represent the data released in January, prior to the latest revisions. Data for the fourth quarter of 2023 were revised upward each month, with particularly notable gains in the December payroll, which was bumped up from 216,000 to 333,000. Strong gains in both December and January indicate positive labor market momentum to kick off 2024.

The data revisions throughout 2023 also contributed to faster employment growth than forecasted. Positive revisions occurred in nine of the twelve months of 2023. Revisions on net increased job gains by 359,000 over the course of the year, bringing the total number of jobs added to just over 3 million. Forecasters had expected employment to increase by only 1.7 million, according to the November 2022 Survey of Professional Forecasters.

While 2023 was a year of healthy job growth, it was considerably weaker than 2022, when 4.5 million jobs were added. The FRED graph below shows annual job gains for each year since January 2010. The employment level increased at such an aggressive rate in 2022 partly because the labor market was recovering the 9.2 million jobs lost in 2020. The trend of slowing annual growth is expected to continue throughout 2024, as the economy gradually returns to its longer-run trend growth.

For reference: From 2011 through 2019, the economy added on average 2.3 million jobs each year. The November 2023 Survey of Professional Forecasters reports an annual predicted growth of 1.4 million jobs in 2024.

How this graph was created: First graph: In ALFRED, search for “All Employees, Total Nonfarm” and selected the seasonally adjusted series with data until 2024. From the “Edit Graph” panel, use the “Edit Bar” tab to change the units to “Change, Thousands of Persons.” Change the selected dates above the graph to begin on January 1, 2023. Second graph: In FRED, search for and select “All Employees, Total Nonfarm,” again selecting the seasonally adjusted series. From the “Edit Graph” panel, use the “Edit Line” tab to change the units to “Change from Year Ago, Thousands of Persons.” On the same tab, change the frequency to “Annual” and then change the aggregation method to “End of Period.” Use the “Format” tab to change the graph type to “Bar.” Change the selected dates above the graph to begin on January 1, 2010.

Suggested by Charles Gascon and Joseph Martorana.

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