Labour will bolster the US economy in 2024

IN 2024, the eyes of market participants will be focused intently on the Federal Reserve. The two key questions are: when will the central bank cut benchmark interest rates from their highest levels since 2000, and by how much? As much as those questions matter to investors and traders, they are far less relevant for the so-called real economy and its ability to avoid a painful recession.

Why? Because the labour market is the most important cushion against any policy mistakes the Fed might make on the path towards a so-called soft landing. Consider that economists expect the United States Labor Department to say at the end of this week that the unemployment rate held below 4 per cent in December for the 23rd straight month, the longest stretch since the 1960s. And the gains made in the job market are inclusive. The employment rate for prime-age women hit an all-time high of 75 per cent in 2023, and records were also set in terms of employment for workers with disabilities and the labour force participation rate for Black men.

An economy at full employment like now means more hours worked, bigger pay cheques and more Americans covered by healthcare and other benefits. All of those things have been crucial in alleviating the crunch of elevated consumer prices. The wages of most workers, especially those at the bottom, are now rising at a faster pace than inflation. Plus, faster productivity growth should help sustain wage gains above pre-pandemic levels.