The US labor market ended 2024 on a high note, with nonfarm payrolls increasing by 256,000 in December, significantly surpassing the consensus forecast of 165,000.
Revised data for October and November shaved a modest 8,000 off earlier estimates, leaving payroll growth over the past three months at an average of 170,000—a moderate pace that aligns with an annual average of 186,000 for the year.
The unemployment rate also edged lower, falling to 4.1% in December from 4.2% in November, against expectations for no change.
Bill Adams, chief economist at Comerica, highlighted the labor market’s resilience, noting that while the unemployment rate is no longer at historic lows, it still reflects a robust environment where most Americans seeking work can find it. “Wage growth is solid and has outpaced inflation for a year and a half,” Adams said.
However, he pointed out a soft spot in hiring trends. Gross hiring rates, a key measure of labor market dynamism, have slowed to levels last seen during the early stages of the post-2008 recovery.
On a brighter note, leading indicators such as job openings and temporary employment suggest a recovery in hiring may be on the horizon in 2025.
Financial markets reacted sharply to the data. The US dollar surged, as did oil prices, with Brent crude climbing above $80 per barrel, its highest level since October.
Equities, however, faced selling pressure, with the Nasdaq falling 1.6% as investors recalibrated expectations for Federal Reserve policy.
Most analysts felt that the December jobs report complicates the Federal Reserve’s decision-making. With inflation remaining above the Fed’s 2% target but below 3% for a year, policymakers are likely to hold off on further interest rate cuts at their January 29 meeting.
Looking ahead, economists anticipate a modest cooling in the labor market. Payroll growth is expected to average around 120,000 per month, with the unemployment rate hovering between 4.2% and 4.3%. Slower labor force growth could prevent a significant rise in unemployment, supporting a controlled deceleration in hiring activity.
Wells Fargo economists project that further rate cuts may not occur until later in 2025 as the central bank seeks to balance economic growth and inflation control.
“Payroll gains are likely to ease a bit more as readings of labor demand remain near multi-year lows and a moderation in the labor force makes it somewhat harder to hire,” Wells Fargo analysts wrote.
“Slower growth in the labor supply, however, should keep the unemployment rate from rising materially.”