(Reuters) – U.S. job growth unexpectedly accelerated in December while the unemployment rate fell to 4.1% from November’s 4.2% as the labor market ended 2024 on a solid footing, reinforcing the Federal Reserve’s cautious approach to interest rate cuts this year.
Nonfarm payrolls increased by 256,000 jobs last month after rising by a downwardly revised 212,000 in November, the Labor Department said on Friday. Economists polled by Reuters had forecast payrolls advancing by 160,000.
MARKET REACTION:
STOCKS: E-minis extended losses and were down 0.75%, pointing to a weak open on Wall Street
BONDS: The yield on benchmark U.S. 10-year notesjumped to 4.765%, the two-year note yield jumped to 4.352%FOREX: The turned 0.4% higher and the euro extended a loss to -0.45%
COMMENTS:
JACK MCINTYRE, PORTFOLIO MANAGER, BRANDYWINE GLOBAL (emailed comment)
“The outsized strength in the November employment report put a stake in the heart of more Fed rate cuts in the first half of 2025. The December employment report gives further evidence to the Fed that 1. They made a policy mistake by cutting rates 100bps late last year. 2. En masse, they are becoming more cautious about executing future rate cuts. The longer the Fed is on pause the more likely the next move will be to start increasing policy rates. As important as the labor situation is, THE critical variable for the Fed and markets is all things inflation. Next (LON:) week’s inflation data will be more important. Look for Treasury market to shift to a bear flattening from its recent bear steepening trajectory. Higher oil prices won’t help the Treasury complex.”
CHRIS ZACCARELLI, CHIEF INVESTMENT OFFICER, NORTHLIGHT ASSET MANAGEMENT, CHARLOTTE, NORTH CAROLINA (emailed comment)
“In the topsy turvy world of financial markets, what’s good news for job seekers is bad news for the stock market.
“The better-than-expected increase in jobs caused an immediate reaction in both stocks and bonds, with prices moving lower (and bond yields moving higher, as yields move inversely with price), as the Federal Reserve has even less of a reason to cut interest rates this year.
“Although the stock market doesn’t need lower rates in order to go higher, lower rates are a tailwind for equities and, more importantly, a Federal Reserve bank that is easing policy is always a better environment for equity investors than one where they are tightening policy (or leaving policy unchanged).
“At this point in the cycle, earnings will need to improve – and not just within the large tech companies – in order to have markets “grow into” their already high valuations, so we would be cautious in the short term.”
SEEMA SHAH, CHIEF GLOBAL STRATEGIST, PRINCIPAL ASSET MANAGEMENT (emailed comment)
“The important payroll beat will be good news for the U.S. economy and the US dollar, unwelcome news for equities as they seek interest rate relief, and punishing news for global bond markets, particularly UK gilts. U.S. labor market strength is clearly a continuing theme and suggests that the economy continues to thrive. The Fed can be very comfortable staying put in January and will need some meaningful downside inflation surprises or reversals in upcoming jobs reports to wake them from rate slumber in March.
“For global bonds, the strength of the U.S. jobs report just adds to their challenges. The peak for yields has not yet been reached, suggesting additional stresses that several markets, especially the UK, can ill afford.”
SAM STOVALL, MARKET STRATEGIST, CFRA, ALLENTOWN, PENNSYLVANIA
“The number of payrolls rising 100,000 more than anticipated has added to the uncertainty about the trend in inflation, as well as the prospects for the Fed to cut interest rates in 2025.”
“The 10-year yield will remain above 4% this year and as a result it could be quite challenging for the stock market. We started the year on the wrong foot.”
ROBERT PAVLIK, SENIOR PORTFOLIO MANAGER, DAKOTA WEALTH, FAIRFIELD, CONNECTICUT
“The reaction was pretty much what I expected from a stronger than expected non-farm payroll report: 256,000 is good for Main Street, but it’s not good for Wall Street. The market was hoping for something either directly in line or weaker in order to pull the Federal Reserve from the sidelines back into cutting interest rates.”
“But the report really goes just the opposite way. It has the Fed staying on hold because it appears that the economy doesn’t need additional rate cut.”
“Many of the jobs seem to have been created in the hospitality space. If Trump has his way of deporting 15-20 million people there’s going to be a lot more job openings.”
TORSTEN SLOK, CHIEF ECONOMIST, APOLLO GLOBAL MANAGEMENT (emailed comments)
“Nonfarm payrolls coming in stronger than expected. The unemployment rate comes in lower than expected. Strong private sector job growth.
“Higher for longer continues to be the key theme in markets. Higher for longer in the front end because of a strong economy. And higher for longer in the long end because of a strong economy and fiscal worries.”
LINDSAY ROSNER, HEAD OF MULTI SECTOR FIXED INCOME INVESTING, GOLDMAN SACHS ASSET MANAGEMENT, NEW YORK (emailed comment)
“Data did not earn a January cut. The US labor market ended 2024 on a firm footing with strong employment growth, falling unemployment and resilient wage pressures. The strength of today’s December jobs report puts to rest lingering chances of a 25bp cut in January and shifts the focus to the March meeting, where further rate cuts will depend on progress on inflation.”
BRIAN JACOBSEN, CHIEF ECONOMIST, ANNEX WEALTH MANAGEMENT, MENOMONEE FALLS, WISCONSIN
“The knee-jerk response to this payrolls report is to suggest the Fed doesn’t need to cut ever again. In fact, why not hike? But the details matter and the gains are still mostly in non-cyclical sectors. Wages aren’t contributing to inflationary pressures. The Fed can afford to wait to cut further, but unless inflation drifts higher there’s no need for the Fed to hike to tamp down inflation.
MICHAEL BROWN, SENIOR RESEARCH STRATEGIST, PEPPERSTONE, LONDON
“I think this will only encourage a continuation of the USD upside that has been the market’s bias for a while, certainly serves to reinforce the US exceptionalism theme, and should keep the Fed relatively hawkish compared to peers in the G10 space.”
“Biggest risk to that USD bullish view would be if participants seek to take profit/trim risk early next week ahead of Trump’s inauguration.”
PETER CARDILLO, CHIEF MARKET ECONOMIST, SPARTAN CAPITAL SECURITIES, NEW YORK
“This report will fuel yields even higher, the labor market is not showing any signs of weakening.”
“This, combined with the unknowns over Trump’s tariff policies, seals the fact that the Fed is going to stay on pause for a longer period than expected.”
“The good news is there’s no increase in wage inflation and the participation rate can’t be blamed on the unemployment rate moving lower.”
“This is a good report for the economy but a headache for the Fed. The Fed’s not going to lower rates any time soon and the pause is likely to continue well into the second quarter.”
“If the labor market continues this way and Trump enacts his tariff policies, we’ve probably seen the end of the easing cycle.”
