1Murat Tasci (1-212) 622-0288murat.tasci@jpmchase.comJ.P. Morgan Securities LLCNorth America Economic ResearchGlobal Data Watch09 February 2024J P M O R G A Nment for businesses. Moreover, it looked like the US econo-my had already recouped all the jobs lost during the pandemic by early fall 2022. In the end, businesses added about 3.0mn new jobs last year. What explains this surprising resilience?First, the overall economy proved to be more resilient to higher interest rates than we anticipated a year ago. In fact, the payroll growth in 2023 was in line with what one would have expected given this performance (Figure 2). As we argued in our 2024 US Outlook, we do not think this perfor-mance was due to a changing dynamic in the monetary trans-mission mechanism. Instead, many households and business-es seem to have been well insulated from higher interest rates so far, having locked in low rates during the pandemic. More-over, monetary tightening has been offset partly by the fiscal side. We also think that the full effects of the restrictive policy have not been felt yet. As a result, the annual growth in real GDP for 2023 was around 2.5%, a step up from the 1.9% pace in 2022. That was a significantly stronger performance than the 0.7% median expectation in the SPF a year ago. -7-5-3-1135-4-20246Annual payroll gains, %chAnnual % change, real GDP Figure 2: Output growth vs payroll gains, 1990-2023Source: BLS, J.P. Morgan202320212020202261626364656667680.00.51.01.52.02.50005101520% ch.Figure 3: Participation rate and population growth%Source: BLS, J.P. MorganParticipation ratePopulation growthStronger-than-expected real activity kept demand for labor high, but without improvements on the supply side it would have been difficult to observe the solid hiring we saw in 2023. More specifically, the labor force participation rate and the civilian labor force rose sharply last year after solid gains in 2022. Together, these supply-side surprises have provided significant support for robust job gains over the past several quarters. The rebound in the participation rate over the past two years was sizable given the strong secular trend dragging the participation rate over the past two decades (Figure 3). •Stronger-than-expected GDP growth in 2023 kept labor demand high•Supply side surprises made it possible to accommodate that demand•Cyclical tailwinds from the aggregate employment cycle have likely subsided•The few sectors that led the payroll gains in 2023 will have less room in 2024The pandemic caused major dislocations in the labor market in a short period of time. Some changes from this episode, such as remote work and flexible work arrangements, might be here to stay, but otherwise the labor market seems to have recovered well and normalized. In fact, at first glance, the resilience we have seen over the past year was largely unex-pect...
