The US labor market ended 2024 on a strong note, with robust job growth and a notable decrease in the unemployment rate. Nonfarm payrolls increased by 256,000 in December, while unemployment fell to 4.1% from 4.2%. The number of permanent job losers decreased, and the duration of unemployment was reduced.
Wages rose by 0.3% in December, marking a year-over-year increase of 3.9%. Analysts believe the positive trend in job growth and wage increases signals strong momentum in the labor market entering 2025. The decrease in unemployment reflects a tightening job market, benefitting job seekers and encouraging further economic activity.
This report comes shortly after the Federal Reserve paused rate cuts, suggesting confidence in the economy’s resilience. The increase in average hourly earnings further supports consumer spending, a key driver of economic growth. However, the strong jobs report sent stocks plunging on Friday as investors digested the better-than-expected data.
The Dow dropped by 697 points, closing at 41,938, while the S&P 500 fell by 1.5% and the tech-heavy Nasdaq index declined by 1.6%.
Strong labor market impacts stocks
The three indices all finished the week in the red as Friday’s selloff erased the week’s previous gains.
The selloff was triggered by concerns that strong job growth could raise questions about how soon the central bank will cut interest rates again. Traders now expect just a 2.7% chance the Fed will cut rates at its policy meeting later this month, according to the CME FedWatch Tool. The Russell 2000 index, which tracks smaller companies, fell 2.2%, highlighting concerns about the impact of enduring high interest rates.
Adding to market jitters were President-elect Donald Trump’s proposed tariff policies, which have spooked investors and sent bond yields surging. Following the stronger-than-expected December employment data and concerns about resurgent inflation, Wall Street is adjusting its expectations for the Fed’s rate-cutting path this year. Analysts at Goldman Sachs now expect just two rate cuts from the central bank — in June and December — as opposed to the previously anticipated three, citing job growth that exceeded expectations.
At Bank of America, economists now believe the Fed is done cutting rates and see a growing possibility that central bankers may instead need to consider raising rates. However, analysts at Morgan Stanley expect the Fed to cut rates in March, highlighting diverging forecasts on Wall Street. The data underscores a solid finish to the year for the labor market, suggesting continued optimism for economic prospects going forward, despite the mixed reactions from investors and analysts.
