WASHINGTON — The job market in the U.S. showed unexpected resilience last month with significant job growth and a decrease in unemployment, a trend that could complicate the financial landscape for potential homebuyers and businesses expecting reduced interest rates aimed at easing their purchase costs for goods ranging from refrigerators to homes.
According to the Labor Department’s report released on Friday, job growth experienced an increase of 212,000 positions last month compared to November. The U.S. has seen consistent job creation throughout 2024, totaling 2.2 million jobs; however, this pace has slowed as the hiring surge that followed the pandemic normalizes. The total for last year marked a decline from 3 million new jobs in 2023, 4.5 million in 2022, and a record high of 6.4 million in 2021 when the economy rebounded from extensive pandemic-related job losses.
Despite the deceleration, adding 256,000 jobs in a single month is noteworthy. In the five years leading up to the pandemic, solid economic years averaged monthly job growth at about 190,000.
The December job creation figures surpassed economists’ expectations, which estimated only 155,000 new jobs should be added. Moreover, unemployment, which was anticipated to remain around 4.2%, decreased to 4.1% last month. In particular, the healthcare sector increased by 46,000 jobs, retail sectors added 43,000 jobs, and government agencies across federal, state, and local levels contributed 33,000 jobs, although the manufacturing sector saw a reduction of 13,000 jobs.
Following the release of the positive job growth figures for December, U.S. markets experienced a sharp downturn, as the chances for the Federal Reserve to proceed with interest rate cuts diminished. This indicates that the economy might not require additional support at this moment.
However, the present interest rates continue to pose challenges for Americans looking to finance homes, vehicles, or appliances. Mortgage rates have now increased for the fourth consecutive week and have reached their highest levels since July.
In terms of wages, the average hourly earnings increased by 0.3% from November and 3.9% compared to the same month last year. This annual wage growth was slightly below economists’ forecasts.
Revised data from the Labor Department also adjusted the prior month’s employment figures downward by 8,000 jobs in October and November, adding another layer of complexity to understanding the current job market dynamics over the past several months.
Recent events, including hurricanes and a significant strike at Boeing, impacted the October employment statistics, leading to a weak number followed by a rebound in November, potentially overstating the hiring surge.
Thomas Simons, chief economist at Jefferies, noted that holiday-driven seasonal adjustments may have influenced the December data, although he emphasized that overall, the report appears quite positive.
Gus Faucher, chief economist at PNC Financial Services Group, expressed appreciation for the combination of robust job growth, declining unemployment, and modest wage increases, which collectively lessen the threat of inflation. He concluded that the overall economic outlook based on these factors was very favorable.
In recent years, the unexpected strength of the U.S. economy and job market has taken many by surprise. In response to inflation levels that reached their highest in four decades two and a half years ago, the Federal Reserve enacted a series of rate hikes—raising the fed funds rate 11 times throughout 2022 and 2023, now at the highest point in over 20 years.
While increased borrowing costs were anticipated to instigate a recession, this did not materialize as firms continued hiring and consumers maintained their spending patterns. Consequently, the U.S. gross domestic product has maintained a strong annual growth rate of 3% or more in four of the last five quarters.
American workers currently experience a heightened sense of job security, with layoffs remaining below pre-pandemic levels. Recently released data indicated that only 211,000 applications for unemployment benefits were submitted last week, marking the lowest figure in almost a year.
Furthermore, inflation rates have reduced significantly from their peak of 9.1% in June 2022, dropping to 2.7% in November. This easing in year-over-year price increases has granted the Fed confidence to initiate rate cuts three times in the final months of 2024.
Nevertheless, Fed officials indicated during their December meeting that they are now more cautious regarding subsequent rate cuts, projecting only two reductions in 2025, a decrease from the four they previously anticipated in September. Progress against inflation appears to have stalled, still hovering above the Fed’s targeted rate of 2%.
This positive jobs report reduces the likelihood of the Fed decreasing its key interest rate in the upcoming January meeting and may lead to a more extended period without any rate alterations. Strong job growth enhances consumer spending and economic expansion, but it may also maintain or elevate inflation levels.
Many economists now caution that any potential rate cuts may not occur until the latter half of this year, if at all. Thomas Ryan, an economist at Capital Economics consulting firm, noted that the likelihood of the Fed nearing the end of its rate cuts has increased significantly.
