Job growth in December was much faster than expected, likely giving the Federal Reserve less incentive to cut interest rates this year.
Nonfarm payrolls rose by 256,000 for the month, up from 212,000 in November and beating the Dow Jones consensus estimate of 155,000, the Bureau of Labor Statistics said Friday.
The unemployment rate fell slightly to 4.1%, one-tenth of a percentage point lower than expected. Alternative measures, which include disengaged workers and those taking part-time jobs for financial reasons, fell by 0.2 points to 7.5%, the lowest level since June 2024.
Stocks fell sharply on the news, while U.S. Treasury yields rose as traders priced in a lower chance of the Fed cutting interest rates this year.
“This is a report to watch,” said Dan North, senior economist for North America at Allianz Trade. “You have to think[Fed Chair]Jerome Powell is breathing a sigh of relief in the sense that his job is a little bit easier. Inflation hasn’t been going anywhere in recent months, so there’s no incentive to cut rates. No, we don’t need to cut interest rates to stimulate the economy because we know this (employment statistics). ”
The report capped a year in which employment rose month-over-month, although it was inconsistent and at times raised questions about whether a recession was looming. But the last two months showed that the labor market remains strong as the Fed considers its next steps on monetary policy.
One area that Fed officials have stressed is not a driver of inflation is the labor market, where wage growth was slightly lower than expected.
Average hourly wages rose 0.3% in the month, in line with expectations, but the 3.9% increase over the 12-month period was slightly below expectations, at least indicating that wage inflation is becoming less of a factor. Average weekly working hours again stabilized at 34.3 hours.
“You’ll never hear me complain about 250,000 jobs,” Chicago Fed President Austan Goolsby said on CNBC’s “Squawk on the Street.” “I think the employment statistics are solid. I’m even more relieved that the job market is stabilizing at a level similar to the full employment rate,” he said.
Employment growth was driven by familiar sources such as health care (up 46,000 jobs), leisure and hospitality (up 43,000 jobs), and government (up 33,000 jobs).
Retail sales also showed a significant increase, increasing by 43,000 after dropping by 29,000 in November ahead of the year-end sales season. The sector’s full-year employment growth was 2.2 million, a sharp decline from the 3 million increase in 2023.
Revisions over the past few months have not been significant compared to recent trends. October’s statistics showed an increase of 7,000 people to 43,000, but November’s statistics showed a decrease of 15,000 people compared to earlier estimates.
At their December meeting, Fed officials deemed the labor market slowing but generally healthy. The Fed cut its key borrowing rate by a quarter of a percentage point at the meeting, but signaled it would slow the pace of future cuts.
The market expects the Federal Reserve to leave the rate unchanged at its meeting at the end of this month, and futures prices after the employment report have swung to expectations that there will be only one rate cut this year. According to CME Group’s FedWatch Index, the probability of a single interest rate cut suggested by the market rose to 68.5% after the jobs report.
Goolsby said he still expects rate cuts to occur this year as long as the flow of data remains steady.
“The surprisingly strong jobs report doesn’t make the Fed any less hawkish,” said Ellen Zentner, chief economic strategist at Morgan Stanley Wealth Management. “All eyes will be on next week’s inflation numbers, but even if these numbers cause a surprise on the downside, it probably won’t be enough to cause the Fed to cut rates anytime soon.”
Central bankers have recently expressed concern that the pace of inflation has exceeded the Fed’s 2% target, largely due to persistently high home prices and some commodity prices. is.
Household reports, which the BLS uses to calculate unemployment rates, show an even stronger employment picture. That number increased by 478,000 people in the same month, as the labor force grew by 243,000 people and the share of working-age people holding or looking for work held steady at 62.5%.
Full-time employment increased by 87,000 people, while part-time workers increased by 247,000. The number of unemployed people decreased by 235,000.
The length of unemployment increased slightly to 23.7 weeks, the highest level since April 2022. However, the number of people who reported being unemployed for 27 weeks or more fell by 103,000 to 1.55 million.
