Recent fears of a downturn in the job market seem to have been overstated. The December employment report shows a resilient labor market, suggesting it is heating up, or at least not cooling down significantly, as 2025 begins.

Key Takeaways:

• Job Market Strength: The unemployment rate dropped, employers added jobs, more adults entered the workforce, and wages increased at a solid pace in December.
• Fed's Rate Cut Plans: A strong labor market makes it less likely the Federal Reserve will continue cutting interest rates. Expectations for a rate cut later this month have diminished, and chances of a rate cut in March fell significantly on Friday.
• Economic Stability: With a solid labor market, the Fed can proceed with caution, as inflation remains sticky.

What Experts Are Saying:

An expert noted increased confidence in the stability of the job market, stating that the recent trend shows the job market is not deteriorating as feared. Historically, when unemployment rises, it tends to keep rising, but this time, things seem different.

The Numbers:

• Job Growth: The U.S. economy added 256,000 jobs in December — the most since March 2024 and 100,000 more than expected.
• Unemployment: The unemployment rate dropped from 4.2% to 4.1%, alleviating earlier concerns of a possible recession triggered by rising unemployment last summer.
• Prime-Age Workers: The share of employed adults between 25 and 54 increased by 0.1%, rising to 80.5%, partially recovering from previous losses.
• Wages: Average hourly wages rose by 0.3% in December, bringing the yearly increase to 3.9%.

The Broader Picture:

The final labor market data of 2024 shows a strong finish, nearly matching the job growth seen at the beginning of the year. However, compared to 2023, the labor market has slowed slightly. In 2024, the economy added an average of 186,000 jobs per month, down from 251,000 in 2023.

Market Reaction:

The bond market reacted by selling off, pushing bond yields higher as the likelihood of Fed rate cuts diminished. The yield on the 10-year U.S. government bond rose to 4.78%, the highest since late 2023, from 3.62% in mid-September when the Fed started cutting rates.

The Fed's Strategy:

The Fed initiated its rate-cutting cycle with concerns about the labor market, which appeared weaker at the time. Since then, those fears have eased, and inflation has not cooled as expected, with risks of inflation reemerging due to potential changes in trade and immigration policies under the incoming administration.

The bottom line: The economy remains strong, and the labor market has held up under the weight of high inflation and interest rates, leaving a stable foundation for the incoming administration to inherit.