Jobs report December 2024:

Employment growth was much stronger than expected in December, likely providing the Federal Reserve with less incentive to cut interest rates this year.

Nonfarm payrolls rose by 256,000 for the month, up from 212,000 in November and above the forecast of 155,000 by the Dow Jones consensus, the Bureau of Labor Statistics reported on Friday.

The unemployment rate fell to 4.1%, a tenth of a point below expectations. An alternative measure that includes discouraged workers and those taking part-time positions for economic reasons fell to 7.5%, a decrease of 0.2 percentage points and the lowest since June 2024.

Stock market futures dipped after the report, while Treasury yields rose as traders priced in a lower likelihood of Fed rate cuts this year.

“This is a hot report,” said Dan North, senior economist for North America at Allianz Trade. “You have to think that [Fed Chair] Jerome Powell breathes a sigh of relief in the sense that his job just got a little easier. Inflation hasn’t moved anywhere for months, so there’s no incentive to cut rates. Now you have this [jobs report] so you don’t need to cut taxes to stimulate the economy.”

The report brings to an end a year in which employment grew every month, albeit inconsistently and sometimes raising questions about whether a recession was approaching. However, the last two months have shown a labor market that still operates strongly as the Fed contemplates its next moves on monetary policy.

One area that Fed officials have emphasized not to be a source of inflation is the labor market, and wages are growing a little less than expected.

Average hourly earnings rose 0.3% on the month, which was in line with forecasts, but the 12-month increase of 3.9% was slightly below the outlook and indicated that wage inflation at least became less than a factor. The average work week remained steady at 34.3 hours.

Job growth came from the familiar sources of health care (up 46,000), leisure and hospitality (43,000) and government (33,000).

Retail also saw a sizeable gain, up 43,000 after losing 29,000 in November during the holiday shopping season. The sector saw a salary increase of 2.2 million for the whole year, down sharply from the gain of 3 million in 2023.

The revisions for previous months were less substantial than has been the recent trend. The October count saw an upward shift of 7,000 to 43,000, while the November number was cut by 15,000 from the previous estimate.

At their December meeting, Fed officials considered the labor market mostly healthy, although slowing. The Fed voted at the meeting to lower its key lending rate by a quarter of a percentage point while signaling a slower pace of tapering going forward.

Markets expect the Fed to keep pace at the meeting later this month, with futures prices after the jobs report swinging to the expectation of a single cut this year. The market’s implied probability of a single cut rose to 68.5% after the jobs report, according to the CME Group’s FedWatch gauge.

“The surprisingly strong jobs report certainly didn’t make the Fed any less hawkish,” said Ellen Zentner, chief economic strategist at Morgan Stanley Wealth Management. “All eyes will now turn to next week’s inflation data, but even a negative surprise in those numbers won’t be enough to get the Fed to cut rates any time soon.”

Central bankers have expressed concern lately with the rate of inflation, which has held above the Fed’s 2% target in large part because of stubbornly high housing costs, as well as the prices of the goods.

The household ratio, which the BLS uses to calculate the unemployment rate, presented an even stronger job picture. That number rose by 478,000 in the month, as the labor force grew by 243,000 and the share of working-age people either employed or looking for work remained steady at 62.5%.

Full-time employment increased by 87,000, while part-time workers increased by 247,000. The level of unemployed workers fell by 235,000.

The duration of unemployment was higher at 23.7 weeks, the highest level since April 2022. However, those who have worked for 27 weeks or more decreased to 1.55 million, down by 103,000.