Job growth keeps Fed rate cuts at bay while powering a resilient economy
Labor market conditions have remained steady. U.S. payrolls were up 256,000 in December after a six-month average of 164,700 per month, and the unemployment rate dropped to 4.1%. Wages have held firm, while hours worked have been steady for the past five months. The job market has shaken off the softness experienced last summer and fall after multiple hurricanes and brief strikes (aircraft machinists and dock workers).
Robust job growth bolsters the case for the Federal Reserve (Fed) to take a ‘wait & see’ approach to additional rate cuts in the near term. Fewer rate cuts will most likely disappoint markets. While the overall rate environment is complicated given the sharp rise in interest rates during the past month, a stronger economy is always a winner—even if that translates into fewer rate cuts.
Sadly, Mother Nature doesn’t follow economic trends, and the devastating fires in California are a heartbreaking reminder of this fact. Along with the awful impact on individuals and families in Los Angeles, the effects of fires and their destruction in the second largest metropolitan area in the U.S. are likely to ripple through the economy for months and years to come. Combined with the anticipation of policy changes with the incoming administration, we can expect the recent bouts of volatility in financial markets to continue for the foreseeable future.
The economy is proving to be resilient, even after some noisy months. Headline jobs growth, major industry and subindustry trends, the unemployment rate, hours worked, and wage indications all point to solid labor market conditions—cooler than 2022 and 2023 but still strong. The favorable jobs market remains the backbone of today’s economy and the power behind consumer strength and a U.S. economy that’s doing just fine.
