Author: Lucia Mutikani
WASHINGTON (Reuters) – U.S. job growth likely slowed to a still-healthy pace in December, while the unemployment rate held steady at 4.2%, reinforcing the Federal Reserve’s cautious approach to cutting interest rates this year.
The closely watched Labor Department employment report on Friday is unlikely to be clouded by the weather and strikes that dominated October and November.
The labor market is set to end the year on a solid footing, although fears are growing that President-elect Donald Trump’s promises to impose or massively raise tariffs on imports and deport millions of undocumented immigrants could derail momentum.
Those concerns were evident in minutes of the US central bank’s Dec. 17-18 policy meeting released on Wednesday, which noted that “most participants noted that … the Board may take a careful approach to considering” further cuts.
“The labor market is not as tight as it was coming out of the pandemic, but it is still strong by any historical measure,” said Sevin Yeltekin, a macroeconomist and dean of the Simon Business School at the University of Rochester. “If we can avoid large increases in tariffs and immigration policies that burden businesses that rely on skilled and seasonal talent, businesses will continue to create jobs.”
Nonfarm payrolls likely rose by 160,000 jobs last month after a 227,000 rise in November, which paid off after being severely constrained by the hurricane and strikes, a Reuters survey of economists showed. Estimates ranged from 120,000 to 200,000 added jobs.
Excluding payroll revisions for October and November, that would mean the economy added 2.144 million jobs in the final year of President Joe Biden’s term, the equivalent of 179,000 jobs a month. In 2023, about 3 million jobs will be created.
Labor market resilience, largely reflecting historically low layoffs, has strengthened the economy by supporting consumer spending through higher wages. Average hourly wages are forecast to rise 0.3% after a 0.4% rise in November. The annual increase in wages in December was unchanged and amounted to 4.0%.
Hiring has slowed considerably after the central bank’s big rate hikes in 2022 and 2023. The economy is expanding well above the 1.8% rate that Fed officials consider a non-inflationary growth rate.
THERE IS NO POST-ELECTION EMPLOYMENT
Job gains last month were likely concentrated in non-cyclical industries such as health care and government, a pattern that prevailed for most of 2024. While business sentiment rose after Trump’s election victory on Nov. 5 on hopes of tax cuts and less stringent regulatory measures environment, economists do not predict an increase in employment.
There were also no signs in business surveys that companies plan to increase the number of employees.
“While some uncertainties have receded, tariffs and immigration policy remain key unknowns,” said Andrew Husby, senior economist at BNP Paribas (OTC:) Securities. “After the 2016 election, there was no clear increase in net employment until Congress passed a major tax cut bill.”
Despite the prevailing strength, potential red flags lurk. The unrounded unemployment rate rises to 4.246% in November, which was rounded to 4.2%. In October, it rose to 4.145%, rounding off at 4.1%.
“The round numbers underestimate the recent rise in the unemployment rate,” said Ernie Tedeschi, director of economics at Yale’s Budget Lab. “The unemployment rate is now less than a hundredth of a percentage point away from its July 2024 level. The close rounding of October and November … means that the risks around the December unemployment rate are more to the upside rather than symmetrical.”
The rise in the unemployment rate to 4.3% in July from a five-decade low of 3.4% in April 2023 was key to the Fed kicking off its policy easing cycle with an unusually large half-percentage-point rate cut in September. It followed a quarter-point rate cut in November and December, leaving its benchmark overnight rate in the 4.25%-4.50% range.
Last month, the Fed predicted just two quarter-point rate cuts this year, compared to the four it forecast in September. The reference rate was increased by 5.25 percentage points in 2022 and 2023.
“As things currently stand, Fed officials appear to have reached an uncomfortable level of comfort with the labor market situation,” said Stephen Stanley, chief U.S. economist at Santander (BME:) US Capital Markets.
The government will revise the seasonally adjusted household survey data, from which the unemployment rate is derived, for the last five years. Economists expect minimal or no impact on the unemployment rate.
Deteriorating conditions in the labor market were highlighted by the steady increase in the number of people who lost their jobs permanently, as well as the average duration of unemployment from September to an almost three-year record of 10.5 weeks in November. This is in line with the Job Openings and Labor Turnover Survey, which shows that the employment rate is returning to levels seen at the start of the pandemic.
“For now, the increase in permanent job losses and the duration of unemployment are not too worrisome given the low layoff rate, but the trend for both needs to be monitored,” said Nancy Vanden Houten, chief U.S. economist at Oxford Economics.
