The last full month’s worth of jobs figures under President Joe Biden surprised economists yet again, as December’s nonfarm payrolls vaulted over estimates, making a January pause in the Federal Reserve’s rate-cutting cycle look all but certain.
The Labor Department reported Friday that nonfarm payrolls grew by 256,000 in December—a continuance from a stellar November jobs report, easily better than economists’ expectations for 153,000 jobs created in 2024’s final month, and plenty good enough to secure a 48th consecutive month of payroll gains. November’s number was adjusted a little lower, by 15,000 to 212,000 jobs created, while October’s originally tepid results were upgraded a second time, by 7,000 jobs, to a tally of 43,000 jobs created.
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In the meantime, December’s unemployment rate of 4.1% was an improvement from November’s 4.2% reading, and a tenth of a percentage point better than what economists believed was on the way.
The much-better-than-anticipated headline numbers appeared to strip away any chance of a Federal Reserve reduction to its benchmark interest rate in January.
“The outsized strength in the November employment report put a stake in the heart of more Fed rate cuts in the first half of 2025,” says Jack McIntyre, Portfolio Manager at Brandywine Global. “The December employment report gives further evidence to the Fed that, 1.) they made a policy mistake by cutting rates 100bps late last year, and 2.) en masse, they are becoming more cautious about executing future rate cuts.”
Here’s a brief look at the December jobs report’s most pertinent details:
- December payrolls: +256,000 month-over-month (estimate: +153,000)
- December unemployment: 4.1% (estimate: 4.2%)
- December hourly earnings: +0.3% MoM (estimate: +0.3%)
- November payrolls (revised): +212,000 (+227,000 previously)
- October payrolls (revised): +43,000 (+36,000 previously)
Health care added 46,000 jobs in December, aided by gains in home health care services (+15,000), nursing and residential care facilities (+14,000), and hospitals (+12,000). Health care finished off a vibrant 2024 with an average of 57,000 jobs created monthly.
Retail trade rebounded from a 29,000-job loss in November with 43,000 jobs added in December. Government employment (+33,000) was only a little behind its 2024 average monthly jobs gain of 37,000 in 2024, while social assistance employment (+23,000) came in above its 18,000 monthly average.
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Manufacturing was one of the few losers, at 13,000 jobs lost during December. Mining and logging (-3,000), as well as utilities (-300), saw small job losses as well.
Average hourly earnings for employees on private nonfarm payrolls were largely in line, up 0.3% month-over-month, to $35.69. That comes out to a 3.9% year-over-year rise in average hourly earnings across 2024.
“Despite rising unemployment benefits claims and a decline in consumer confidence, the December jobs report indicates the jobs market is stable,” says Steve Rick, Chief Economist at financial services provider TruStage. “Looking ahead, we remain hopeful the Fed will lower interest rates by another 100 basis points over the next 12 months as we continue to see inflation fall to the 2% target. In turn, we expect investment values and as equity levels rise, ultimately boosting consumer confidence.”
But it’s unlikely any part of those rate reductions will come in January.
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“Data did not earn a January cut,” says Lindsay Rosner, head of multi sector fixed income investing at Goldman Sachs Asset Management. “The U.S. labor market ended 2024 on a firm footing with strong employment growth, falling unemployment and resilient wage pressures. The strength of today’s December jobs report puts to rest lingering chances of a 25-basis-point cut in January and shifts the focus to the March meeting, where further rate cuts will depend on progress on inflation.”
The market appears to agree. The CME FedWatch Tool, which uses Fed funds futures prices to track the probability of a change to the central bank’s benchmark rate, showed a 97% chance that the Federal Reserve would keep its Fed funds rate at the current 4.25%-4.5% range during the next Federal Open Market Committee meeting, set for Jan. 28-29. That was up from 94% a day prior.
More Expert Reactions to December’s Jobs Report
Here’s what strategists, financial managers, and other experts had to say about the December employment situation:
Jason Pride, Chief of Investment Strategy & Research, Glenmede
“2024 might be remembered as the year that the Sahm rule was slain, as the labor market proved remarkably resilient despite an initial upward drift to the unemployment rate. That’s because this upward drift to the unemployment rate is not consistent with a deterioration in conditions, but rather a normalization path after sitting notably tight for some time.
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“Next week’s CPI report should be a key focus for investors, as some early signs of re-acceleration are likely to face additional scrutiny before the Fed is willing to take the next step in its rate cut campaign.”
Peter Graf, Chief Investment Officer, Nikko Asset Management Americas
“Today’s unemployment report likely sounds the death knell for this easing cycle from the Fed. The beat on the fickle payrolls number could later be revised away, but its strength is legitimized by household unemployment survey results that have at least plateaued, if not peaked. The maturity wall for corporate borrowing will start to seem much closer now that the balance of risks has tilted toward inflation, and we can’t rule out a hike as the Fed’s next move.”
Josh Jamner, Investment Strategy Analyst, ClearBridge Investments
“Job creation was healthy and the unemployment rate declined, while wage gains remained steady. This should continue to allay fears of downside risks to the labor market which in turn diminishes the case for further interest rate cuts from the Federal Reserve.
“While bond yields jumped and equities sold off on the release, longer-term, this should be a positive development for financial markets. The consumer has been a key component of U.S. exceptionalism over the past several years, and continued growth in aggregate incomes (aggregate weekly payrolls +5% YoY) should help drive solid spending trends in the months to come. In turn, this should boost the outlook for economic growth and corporate profits, offsetting some of the drag from higher discount rates. This may shift market leadership in favor of shorter duration assets such as value equities (relative to growth). Ultimately, today’s jobs data shows that the U.S. economy remains in good shape.”
Lara Castleton, U.S. Head of Portfolio Construction and Strategy (PCS), Janus Henderson Investors
“Within U.S. markets, the good news is starting to once again sound like bad news. Longer end rates are climbing higher, odds of a 2025 Fed cut are rapidly declining, and further dollar strength has potential to be a headwind for U.S. companies.
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“For investors hoping for equity markets to broaden from the mega-cap tech names, this print didn’t do them any favors. Investors should be mindful of how valuations in many of these names have thus far been able to shrug off higher for longer rates. So long as earnings continue to come in strong, these companies will have no reason to lose dominance, but there are many quality companies outside of megacap that have already been pricing in negative sentiment and have potential for upside from here.”
Scott Helfstein, Head of Investment Strategy, Global X
“The Fed has it right, for now. They are tasked with stable prices and full employment. This is one more sign that the labor market is strong. New job creation had been slowing modestly averaging about 190,000 per month. At 226,000, the December jobs report comes in well above that trend.
“Business services added jobs in December and this is interesting. When we think of services, we tend to focus on the consumer. There is a shift underway with business services playing a larger role. The expansion in the services economy is not the same today as it was 40 or even 20 years ago. This is not just about the consumer, but the health of the broader economy.”
Hal Cook, Senior Investment Analyst, Hargreaves Lansdown:
“2025 has already seen notable increases in gilt [U.K. sovereign] and U.S. Treasury yields. Today’s employment data out of the U.S. is likely to cause further increases from here … [it shows] that the U.S. economy is potentially in better shape than investors thought, and this reduces the likelihood of Fed rate cuts in 2025.
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“What happens with U.S. Treasury yields tends to impact other global government bond yields too. The 10-year U.S. Treasury yield spiked just under 10 basis points on the announcement. The 10-year U.K. gilt yield jumped 5 basis points at the same time. Volatility is expected to continue as the information is digested. One small word of caution: U.S. nonfarm payroll data can often be revised quite significantly in due course. Data for December, given the holiday season, could well see a big revision in future. But that won’t stop markets reacting in the meantime.”
