Written by Lucia Mutikani
WASHINGTON (Reuters) – Job growth in the United States is likely to slow to a still strong level in December while the unemployment rate remained stable at 4.2 percent, reinforcing the Federal Reserve’s cautious approach to interest rate cuts. this year.
The Labor Department's employment report will likely not be closely affected on Friday due to the weather and distortions that prevailed during October and November.
The labor market is expected to end the year on a high note, though concerns are growing that President-elect Donald Trump's pledges to impose or increase import tariffs and deport millions of illegal immigrants could derail the momentum.
These concerns were evident in the minutes of the US central bank's December 17-18 monetary policy meeting published on Wednesday, which noted that “most participants noted that…the committee could take a cautious approach in considering” further cuts.
“The labor market is not as tight as it was after the pandemic, but it is still strong by any historical measure,” said Sevin Yeltekin, a macroeconomist and dean of the Simon School of Business at the University of Rochester. “If we can avoid a significant increase in tariffs and immigration policies that hinder companies that rely on skilled and seasonal talent, companies will continue to create jobs.”
A Reuters survey of economists showed that non-farm payrolls likely increased by 160,000 jobs last month after rising by 227,000 jobs in November, which is considered compensation after they were severely affected by hurricanes and strike disruptions. Estimates ranged from 120,000 to 200,000 jobs added.
Excluding revisions to payrolls for October and November, this means the economy added 2.144 million jobs in the final year of President Joe Biden's term, the equivalent of 179,000 jobs per month. About 3 million jobs will be created in 2023.
Labor market flexibility, mostly reflecting historically low layoffs, has supported the economy by supporting consumer spending through higher wages. Average hourly earnings are expected to rise 0.3% after rising 0.4% in November. The annual wage increase is expected to remain unchanged at 4.0% in December.
Hiring has slowed significantly following the central bank's large interest rate hikes in 2022 and 2023. The economy is expanding at a rate well above the 1.8% that Fed officials consider a non-inflationary growth rate.
There is no bump in employment after the election
Job gains last month were likely to be concentrated in non-cyclical industries such as health care as well as government, a pattern that has prevailed for most of 2024. While business sentiment rebounded after Trump's election victory on November 5, hopes for lower taxes and less stringent policies. Given the regulatory environment, economists do not expect an increase in employment.
There were also no signs in business surveys that companies were planning to increase headcount.
“Although some uncertainty has eased, tariffs and immigration policy are major unknowns,” said Andrew Husby, chief economist at BNP Paribas (OTC:) Securities. “After the 2016 election, no clear improvement in net employment occurred until Congress passed major tax-cut legislation.”
Despite the prevailing power, potential red flags lurk. The unrounded unemployment rate rose to 4.246% in November, which fell to 4.2%. In October, it rose to 4.145%, then fell to 4.1%.
“The close data has underestimated the recent rise in the unemployment rate,” said Ernie Tedeschi, director of economics at the Yale University Budget Lab. “The unemployment rate is now less than a hundred percentage points below its level in July 2024. The close rounding of October and November…means that the risks surrounding the unemployment rate in December are leaning more toward the upside rather than being symmetrical.”
The unemployment rate rising 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 interest rate cut of half a percentage point in September. He followed this up with a quarter-point cut in interest rates in November and December, leaving the benchmark overnight interest rate in a range of 4.25%-4.50%.
Last month, the Fed predicted just two quarter-point rate cuts this year compared to the four it expected in September. The interest rate was raised by 5.25 percentage points in 2022 and 2023.
“As things stand, Fed officials appear to have reached an uncomfortable level of comfort with the state of the labor market,” said Stephen Stanley, chief US economist at Santander (BME:) US Capital Markets.
The government will review seasonally adjusted household survey data, from which the unemployment rate is derived, over the past five years. Economists expect little or no impact on the unemployment rate.
The easing of labor market conditions has been underscored by steady increases in the number of people who have lost their jobs permanently, as well as the average duration of unemployment since September to a nearly three-year high of 10.5 weeks in November. This is consistent with the Job Opportunities and Labor Turnover Survey, which shows employment declining to levels seen early in the pandemic.
“So far, the increase in permanent job losses and the duration of unemployment is not a major concern given the lower pace of layoffs, but the trend for both should be monitored,” said Nancy Vanden Houten, chief US economist at Oxford Economics.
