December jobs reports: Giving the Fed good reason to stay put in January

Market response

January 10, 2025 | 2 min read

Christian Floro, CFA, CMT

Market Strategist

The December jobs report showed a 256,000 gain in payrolls, the most added in a single month since March 2024 and well above consensus expectations. Job growth was also broad-based, with both non-cyclical and cyclical areas of the economy seeing gains, more than offsetting the ongoing weakness in manufacturing, which has, in total, shed jobs this year. With the unemployment rate also ticking lower to 4.1%, U.S. labor market strength is clearly a continuing theme and suggests that the economy continues to thrive—the Fed can be very comfortable staying put in January.

Non-farm payrolls
Thousands, January 2022–present

Non-farm payrolls in Thousands, January 2022–present in a bar graph

Source: Clearnomics, Bureau of Labor Statistics, Bloomberg, Principal Asset Management. Data as of January 10, 2025.

Report details

Total non-farm payrolls increased by a solid 256,000 in December, the most added since March 2024 and well above consensus expectations, which had been calling for 165,000. December’s report was a continuation of the strong gains also seen in November, although it was revised slightly lower to 212,000.
Overall job growth was broad-based across industries, though remained most pronounced in non-cyclical areas of the economy. Healthcare and government employment has continued to trend up in recent months, adding 46,000 and 33,000 jobs, respectively. Healthcare added an average of 57,000 jobs per month in 2024, the same as its average monthly gain in 2023.
As for cyclical areas of the economy, retail trade saw a rebound in jobs in the month, following a loss in November. This was likely due to the later than usual Thanksgiving and start of the holiday shopping season that delayed hiring plans. Leisure and hospitality also saw continued employment gains, adding 43,000 jobs in the month, while professional and business services gained 28,000 jobs, the most since May 2024. Meanwhile, manufacturing was among the few sectors that were in the red, as employment declined for the fourth time in five months, removing 13,000 jobs and bringing the total job losses in 2024 to 87,000 workers.
The unemployment rate unexpectedly declined to 4.1%, helped by a slight tick up in hiring and an unchanged labor supply, with the labor force participation rate remaining at 62.5%. Notably, the duration of unemployment ticked lower to 10.4 weeks in the latest period, from a cycle high of 10.5 weeks in the prior month. Despite this positive development, the labor market remains in an uneasy equilibrium—low layoffs coupled with low hirings—suggesting that there remains risk that only a mild pick up in layoffs is needed to see the unemployment rate rise.
Average hourly earnings rose by 0.3% in the month, as expected, bringing the annual rate to 3.9%, from 4.0% prior. Recent earnings growth has so far remained solid, with the three-month annualized rise in wages staying above the 12-month average of 4.0% at 4.1%.

Policy outlook

The large upside surprise in payrolls is good news for the U.S. economy and the U.S. dollar. It’s unwelcome news for equities in the short-term, however, as they seek interest rate relief, and even more punishing news for global bond markets, particularly for UK gilts. The peak for yields may not yet have been reached, suggesting additional financial stresses that several markets, especially the UK, can ill afford.

U.S. labor market strength is clearly a continuing theme and suggests that the economy continues to thrive. As a result, the Fed is likely to keep rates unchanged in January. While our forecast is for a cut in March, the Fed may need to see some meaningful downside inflation surprises or reversals in upcoming jobs reports to wake them from their rate slumber.

Macro views

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