The December jobs report showed that payroll gains easily topped Wall Street's moderate expectations as the unemployment rate unexpectedly fell. The S&P 500 extended early losses after the jobs report as investors reacted to diminished hopes for a near-term Federal Reserve rate cut.
Fed Chairman Jerome Powell described the job market as "clearly still cooling further," but not in a concerning way, after the U.S. central bank cut its key interest rate on Dec. 18. Today's data casts a lot of doubt on that characterization, although one month's data that's subject to revision can't be relied on too heavily.
Jobs Report Hits And Misses
The U.S. economy added 256,000 jobs in December vs. estimates for 157,000, according to Econoday. Private-sector employers added 223,000 jobs vs. expectations of a 130,000 payroll gain. Government jobs rose by 33,000.
Hiring gains in October and November were revised down by a combined 8,000 jobs.
The unemployment rate unexpectedly fell to 4.1% from 4.2%. Actually the drop was a bit bigger when not round to tenths, to 4.086% from 4.23%.
Average hourly earnings rose 0.3%, as expected, but 12-month wage gains of 3.9% fell shy of 4% forecasts.
More Jobs Report Details
The retail sector added 43,400 jobs. Health care and social assistance providers added 69,500. Leisure and hospitality employment increased by 43,000.
Meanwhile, manufacturers shed 13,000 jobs, while the construction sector added 8,000.
Strong Household Survey
The household survey, which is used to derive the unemployment rate, showed the ranks of the employed jumped by 478,000 in December, nearly double the 243,000 increase in labor force participation, which includes those working or actively looking for work. As a result, the ranks of the unemployed grew by 235,000.
Fed Rate-Cut Odds Fall
Odds of a rate cut on Jan. 29 slipped to just 3%, according to CME Group. Markets are now pricing in 28% odds of a rate cut on March 19, down from 40% before the jobs report. Beyond that, markets show 39% odds of a rate cut on May 7 and 59% odds of a June 18 rate cut.
Traders aren't fully pricing in a Fed rate cut until October.
The odds of 50 basis points in cuts in 2025 are down to just 35% after the jobs report.
Wall Street Reaction To Jobs Report
"The U.S. labor market ended 2024 on a firm footing with strong employment growth, falling unemployment and resilient wage pressures," wrote Lindsay Rosner, head of multi-sector fixed income investing at Goldman Sachs Asset Management.
Rosner wrote that the data "puts to rest lingering chances" of a rate cut later this month, shifting the focus to the March meeting.
Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics, isn't giving much weight to the December jobs report, partly because he anticipates downward revisions. In a note, Tombs highlighted the key question of whether businesses follow through on an early surge of optimism about the incoming Trump administration.
"With interest rates on short-term bank loans at 9% for small businesses and growth in nominal sales slowing, small businesses likely will merely maintain headcounts over coming months," Tombs wrote. "Meanwhile, we think many large businesses will pause hiring until the new administration clarifies its economic policy intentions regarding immigration, tariffs, procurement and regulation."
The upshot: Pantheon expects hiring gains to slow to 100,000 per month in the first half of the year, opening the door to Fed rate cuts.
S&P 500
The S&P 500 lost 0.7% in early Friday stock market action, extending modest early losses after the jobs report. Stocks were pressured by the rising 10-year Treasury yield, which powered ahead to 4.755%, the highest level since November 2023. Positive news has Constellation Energy and Delta Air Lines bucking the S&P 500 downdraft.
The S&P 500 rose 0.2% on Wednesday, before being closed on Thursday, finishing 2.8% off its Dec. 6 record closing high. On Friday, the S&P 500 is falling further below its 50-day moving average, a key technical level, and is at risk of breaking below its recent trading range.
Be sure to read IBD's The Big Picture column after each trading day to get the latest on the prevailing stock market trend and what it means for your trading decisions.
