By Lucia Mutikani
WASHINGTON (Reuters) – U.S. job growth likely slowed to a still-healthy clip in December while the unemployment rate held steady at 4.2%, reinforcing the Federal Reserve’s cautious approach toward interest rate cuts this year.
The Labor Department’s closely watched employment report on Friday will probably not be clouded by the weather and strike distortions that dominated in October and November.
The labor market would be ending the year on solid footing, though fears are mounting that pledges by President-elect Donald Trump to impose or massively raise tariffs on imports and deport millions of undocumented immigrants could derail momentum.
Those worries were evident in minutes of the U.S. central bank’s Dec. 17-18 policy meeting published on Wednesday, which noted “most participants remarked that … the Committee could take a careful approach in considering” further cuts.
“The labor market is not as tight as it was coming out of the pandemic, but it’s still strong by any historical measure,” said Sevin Yeltekin, a macroeconomist and dean of Simon Business School at the University of Rochester. “If we can avoid a large increase in tariffs and immigration policies that encumber companies that rely on both skilled and seasonal talent, businesses are going to continue to create jobs.”
Nonfarm payrolls likely increased by 160,000 jobs last month after surging 227,000 in November, payback after being severely constrained by hurricane and strike disruptions, a Reuters survey of economists showed. Estimates ranged from 120,000 to 200,000 jobs added.
Baring revisions to October and November’s payrolls counts, this would mean the economy added 2.144 million jobs in the final year of President Joe Biden’s term, equivalent to 179,000 positions per month. About 3 million jobs were created in 2023.
Labor market resilience, mostly reflecting historically low layoffs, has powered the economy by supporting consumer spending via higher wages. Average hourly earnings are forecast rising 0.3% after gaining 0.4% in November. The annual increase in wages is seen unchanged at 4.0% in December.
Hiring has slowed considerably in the aftermath of the central bank’s hefty rate hikes in 2022 and 2023. The economy is expanding at well above the 1.8% pace that Fed officials regard as the non-inflationary growth rate.
NO POST-ELECTION HIRING BUMP
Job gains last month were likely concentrated in non-cyclical industries like healthcare as well as government, a pattern that prevailed for much of 2024. While business sentiment perked up following Trump’s Nov. 5 election victory on hopes of tax cuts and a less-stringent regulatory environment, economists are not anticipating a surge in hiring.
There have also been no signs in business surveys that companies are planning to boost head counts.
“Though some uncertainty has receded, tariffs and immigration policy are key unknowns,” said Andrew Husby, a senior economist at BNP Paribas (OTC:BNPQY) Securities. “After the 2016 election, no clear pickup in net hiring occurred until after major tax-cut legislation passed Congress.”
Despite the prevailing strength, potential red flags are lurking. The unrounded unemployment rate has been creeping up, rising to 4.246% in November, which rounded down to 4.2%. In October it climbed to 4.145%, rounding down to 4.1%.
“The rounded data has been understating the recent rise in the unemployment rate,” said Ernie Tedeschi, director of economics at The Budget Lab at Yale. “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 unemployment rate in December are skewed more to the upside rather than being symmetric.”
A surge 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 launching its policy easing cycle with an unusually large half-percentage point rate cut in September. It followed up with quarter-point rate cuts in November and December, leaving its benchmark overnight rate in the 4.25%-4.50% range.
Last month, the Fed projected only two quarter-point rate cuts this year compared to the four it had forecast in September. The policy rate was hiked by 5.25 percentage points in 2022 and 2023.
“As things currently stand, Fed officials appear to have reached an uneasy comfort level with the labor market situation,” said Stephen Stanley, chief U.S. economist at Santander (BME:SAN) 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 jobless rate.
Loosening labor market conditions have been underscored by steady rises in the number of people who have permanently lost their jobs, as well as the median duration of unemployment since September to a near three-year high of 10.5 weeks in November. That is consistent with the Job Openings and Labor Turnover Survey, showing the hires rate falling back to levels seen early in the pandemic.
“So far, the increase in permanent job losses and the duration of unemployment aren’t too concerning given the low pace of layoffs, but the trend for both needs to be monitored,” said Nancy Vanden Houten, lead U.S. economist at Oxford Economics.