(Bloomberg) -- The latest snapshot of the US labor market affirmed what Federal Reserve officials have made clear in recent days: Interest-rate cuts are on hold for the foreseeable future.
Nonfarm payrolls increased 256,000 in December, the most since March — exceeding all but one forecast in a Bloomberg survey of economists. The unemployment rate unexpectedly fell to 4.1%, while average hourly earnings rose 0.3% from November, a Bureau of Labor Statistics report showed Friday.
The data capped a surprisingly strong year for the labor market despite high borrowing costs, lingering inflation and political uncertainty. While demand for workers moderated and the unemployment rate rose in 2024, the economy still added 2.2 million jobs — below the 3 million increase in 2023 but above the 2 million created in 2019.
What’s more, the report included annual revisions to the unemployment rate. Notably, the peak rate in July — which was initially reported as 4.3% and helped lay the groundwork for a full percentage point of rate cuts by the Fed later in the year — was revised lower, suggesting the labor market was somewhat more resilient over the summer than previously thought.
“Given the overall strength of the recent economic data, there is little reason for the Fed to consider cutting rates anytime soon,” Brian Rose, a senior US economist at UBS Global Wealth Management, said in a note. “This will require softer data on both the labor market and inflation in the months ahead.”
The figures are likely to support policymakers’ intent to move cautiously this year — their projections in December showed just two rate reductions for 2025 — amid an apparent stalling in progress toward their 2% inflation goal. Traders and Wall Street economists pared back expectations for cuts following the release. Reports on consumer and wholesale prices due next week will offer more clues on the direction inflation is headed ahead of the Fed’s next policy meeting on Jan. 28-29.
Separate data published Friday by the University of Michigan fueled concerns about stubborn price pressures, with consumers’ longer-term inflation expectations rising to the highest level since 2008 in preliminary survey results.
December’s advance in payrolls was led by health care and social assistance, retail trade and leisure and hospitality. Government employment also rose. Manufacturing was a notable weak spot — the sector reduced headcount for the fourth time in five months, bringing total job losses in 2024 to 87,000.
The participation rate — the share of the population that is working or looking for work — was unchanged at 62.5%. Fewer people permanently lost their jobs and more workers left positions voluntarily, while the median duration of unemployment ticked lower.
Central bankers are paying close attention to how labor supply and demand dynamics are impacting wage gains. Friday’s report showed average hourly earnings increased 3.9% from a year ago. Earnings for nonsupervisory employees, who make up the majority of workers, advanced 0.2% from November and 3.8% from a year earlier, marking the slowest annual pace since mid-2021.
Chicago Fed President Austan Goolsbee, speaking on CNBC after the release, said the strength in hiring wasn’t an indication of an overheating economy and that he still expects interest rates to be “a fair bit lower” over the next 12 to 18 months as long as inflation doesn’t move higher.
The jobs report is comprised of two surveys — one of businesses and the other of households. The report included revisions to the household survey, which left the overall picture of the labor market largely intact.
What Bloomberg Economics Says...
“December’s jobs report was solid across the board. While we expected the strong showing in the establishment survey, the significant employment gains in the household survey – including a drop in the unemployment rate — surprised us. We take that as an encouraging sign that the job market may be stabilizing after it deteriorated steadily over the second half of 2024.”
— Bloomberg economists led by Anna Wong
To read the full note, click here
Revisions to the payrolls survey will be released in next month’s report. A preliminary estimate in August suggested job growth in the year through March 2024 would be marked down by the most since 2009.
Though data on weekly filings for unemployment insurance suggest layoffs remained subdued in 2024, several big-name companies including BlackRock Inc. and Tyson Foods Inc. have revealed plans to reduce headcount this year. In 2024, companies announced the fewest hires in almost a decade, according to a report from executive-coaching firm Challenger, Gray & Christmas.
It also remains to be seen how President-elect Donald Trump’s economic agenda — particularly plans for mass deportations and punitive tariffs on imported goods — will impact the labor market.
The jobs report, as well as other government surveys, has been criticized in recent years for its declining response rate, which has led to large swings in the data. While the initial response rate for December was the highest all year, the rate throughout 2024 was just 60.4%, the weakest since 2002. It trended well above 70% in the years leading up to the pandemic.
--With assistance from Chris Middleton, Molly Smith, Nazmul Ahasan, Maria Clara Cobo and Ye Xie.
(Updates with Wall Street rate calls in sixth paragraph.)
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