The US economy ended 2024 on a strong note as the job market showed better-than-expected growth in December. According to the Bureau of Labor Statistics, the US added 256,000 new jobs last month, surpassing economists’ predictions of 165,000 and the 212,000 jobs added in November. This marks the highest monthly job gain since March 2023.
In addition to strong job growth, the unemployment rate decreased from 4.2% in November to 4.1% in December. This drop signals continued strength in the labor market as the US economy continues to recover and grow.
Labor Market Shows Strength
The revisions to earlier unemployment data for 2024 also showed that the labor market was stronger than initially reported. For example, the unemployment rate for July was revised down from 4.3% to 4.2%, highlighting the improvement in job conditions throughout the year.
Economist Thomas Simons from Jefferies pointed out that these numbers paint a clear picture of a strong labor market. “There is no denying that this is a strong report,” Simons said, adding that the numbers are positive for the overall economy.
Wage Growth Shows Signs of Stabilizing
Wages, a key factor in tracking inflation pressures, increased by 0.3% in December. This rise was in line with economists’ expectations and slightly below the 0.4% growth seen in November. Over the past year, wages have risen by 3.9%, a slight decrease from the 4% growth seen in November.
Despite the wage growth, the labor force participation rate remained unchanged at 62.5%, indicating that the number of people actively seeking work did not increase in December.
What Does This Mean for the Federal Reserve?
The solid job gains and the decline in unemployment have led investors to reassess expectations for future interest rate cuts by the Federal Reserve. As of now, the chances of the Fed lowering rates before June have decreased. The CME Fed Watch Tool shows that investors now expect less than a 50% chance of a rate cut in the first half of 2025.
Gregory Daco, chief economist at EY, explained the situation to Yahoo Finance, saying, “You’re seeing this steady but slightly cooling labor market trend, which is very encouraging from a Fed perspective.” He added that attention will likely shift back to inflation concerns over the next few months.
Market Reactions
While the job numbers were strong, the stock market did not react positively. Futures tied to all three major stock indexes dropped by nearly 1% following the release of the December jobs report.
Additionally, the yield on the 10-year Treasury bond rose by 8 basis points, reaching 4.78%. This marks the highest level since November 2023 and signals concerns about higher borrowing costs.
Steve Sosnick, chief strategist at Interactive Brokers, advised investors to adjust their expectations. “If you’re looking for rate cuts based on a weakening labor market … stop looking for those,” he said. “It’s not going to happen in the immediate term.”
Conclusion
The December jobs report paints a picture of a healthy and growing labor market, with strong job gains and a decline in the unemployment rate. However, wage growth remains moderate, and the Federal Reserve is likely to focus more on inflation developments moving forward. The market’s reaction reflects concerns about higher interest rates, with investors adjusting their outlook for rate cuts in 2025.
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