It is difficult to find anything wrong in the December job report. According to the Bureau of Labor Statistics, the country added 256,000 jobs last month to round out the year with a gain of 2,232 jobs. While this is below the increases in the past few post-pandemic years, 2024’s total exceeds job gains in 2019. The unemployment rate dipped to 4.1% from 4.2% as more people were hired than entered the workforce. Most of the job additions were in health care and social assistance, retail trade (a nice surprise after a couple of weak months) and leisure and hospitality. Manufacturing lost jobs for the seventh out of 12 months. Average hourly earnings on a year-over year basis fell to 3.9% from 4.0%, supporting the Fed’s view that the labor market is not fueling inflation.
Related job data this week supports a stable job market. The number of job openings increased to the highest level in seven months, suggesting employers have room to add workers, a positive sign for job seekers. However, both the quits and job-hiring rates fell in November, signs that workers are content to stay where they are or just wait for year-end bonuses before making a change.
FOMC Minutes – The financial markets were correct last month for reading more hesitancy into the Federal Open Market Committee’s (FOMC) position on interest rates. The official December meeting minutes, released this week, revealed more cautiousness over the slowdown in the disinflation trend. FOMC members noted, with concern, that inflation seemed to stall during the fourth quarter of 2024. “A number” of committee members included assumptions in their economic projections regarding the incoming Washington administration; citing many unknowns that could put additional pressure on inflation or possibly slow economic growth. “Many participants” noted the need for a more careful approach to monetary policy in 2025 as the Fed “was at or near the point where it would be appropriate to slow the pace of policy easing.” The minutes suggested officials are comfortable holding rates unchanged at the upcoming end of January meeting. Taken together with the latest job report, the futures market is currently pricing a slight 30% chance of rate hikes by year-end, likely to happen in the second half of 2025.
ISM – The Institute for Supply Management surveys for manufacturing and services activity produced similar results in December. Both surveys showed improvement in overall activity due primarily to increased orders. However, prices rose and employment fell, neither measure particularly good for the economy. Analysts caution against being too optimistic on the increased activity data, suggesting most of the demand came from companies getting ahead of the tariffs proposed by the Trump administration. The pulled-forward demand likely pushed prices up more than normal.