CNN, Washington, D.C. While the unemployment rate remained
stable at 4.2% in December, U.S. job creation probably slowed to a
still-healthy pace, supporting the Fed's cautious approach to interest rate
decreases this year.
The weather and strike distortions that dominated in October
and November are unlikely to obscure the Labor Department's much-anticipated
employment report on Friday.
Although there are growing concerns that President-elect
Donald Trump's promises to impose or significantly increase trade taxes and
deport millions of undocumented immigrants could sabotage momentum, the job
market would be closing the year on a strong note.
The minutes of the U.S. central bank's policy meeting from
December 17–18, which were released on Wednesday, showed that "most
participants remarked that... the Committee could take a careful approach in
considering" more cuts.
Macroeconomist Sevin Yeltekin, dean of the University of
Rochester's Simon Business School, stated, "The labor market is not as
tight as it was coming out of the pandemic, but it's still strong by any
historical measure." "If we can avoid a large increase in tariffs and
immigration policies that encumber companies that rely on both skilled and
seasonal talent, businesses are going to continue to create jobs."
According to a Reuters survey of experts, nonfarm payrolls
probably grew by 160,000 jobs last month after rising by 227,000 in November, a
payback after being severely hampered by disruptions from hurricanes and
strikes. The number of jobs added was estimated to be between 120,000 and
200,000.
This would indicate that the economy added 2.144 million
jobs in the last year of President Joe Biden's tenure, or 179,000 positions per
month, assuming adjustments are made to the payroll figures from October and
November. In 2023, almost 3 million new employment were created.
The economy has been driven by the labor market's
resiliency, which mostly reflects record low layoffs, which have supported
consumer spending through rising wages. After increasing by 0.4% in November,
average hourly wages are expected to increase by 0.3%. In December, the yearly
wage rise remained constant at 4.0%.
Following significant rate hikes by the central bank in 2022
and 2023, hiring has significantly slowed. The rate of economic expansion is
far higher than the 1.8% pace that Fed policymakers consider to be the
non-inflationary growth rate.
Absence of a post-election bump
As was the case for a large portion of 2024, job increases last month were
probably concentrated in non-cyclical sectors like government and healthcare.
Economists are not expecting a spike in hiring, despite the fact that company
mood improved after Trump's election victory on November 5th on expectations of
tax cuts and a less onerous regulatory environment.
Additionally, business surveys have shown no indications
that corporations intend to increase their workforce.
The unrounded unemployment rate has been gradually
increasing, rising to 4.246% in November, which rounded down to 4.2%, and then
to 4.145% in October, which rounded down to 4.1%. "Although some
uncertainty has receded, tariffs and immigration policy are key unknowns,"
stated Andrew Husby, a senior economist at BNP Paribas (OTC:BNPQY) Securities.
"Despite the current strength, no clear pickup in net hiring occurred
after the 2016 election until after major tax-cut legislation passed Congress."
"The rounded data has been understating the recent rise
in the unemployment rate," said Ernie Tedeschi, director of economics at
The Budget Lab at Yale. "The unemployment rate is now less than a
hundredth of a percentage point away from its July 2024 level. The close
rounding of October and November ... means that the risks around the
unemployment rate in December are skewed more to the upside rather than being
symmetric."
A surge in the unemployment rate 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 half-percentage point rate cut in
September. It followed up with quarter-point rate cuts in November and
December, leaving its benchmark overnight rate in the 4.25%-4.50% range.
Last month, the Fed projected only two quarter-point rate
cuts this year compared to the four it had forecast in September. The policy
rate was hiked by 5.25 percentage points in 2022 and 2023.
"As things currently stand, Fed officials appear to
have reached an uneasy comfort level with the labor market situation,"
said Stephen Stanley, chief U.S. economist at Santander (BME:SAN) US Capital
Markets.
The government will revise the seasonally adjusted household
survey data, from which the unemployment rate is derived, for the last five
years. Economists expect minimal or no impact on the jobless rate.
Loosening labor market conditions have been underscored by
steady rises in the number of people who have permanently lost their jobs, as
well as the median duration of unemployment since September to a near
three-year high of 10.5 weeks in November. That is consistent with the Job
Openings and Labor Turnover Survey, showing the hires rate falling back to
levels seen early in the pandemic.
"So far, the increase in permanent job losses and the
duration of unemployment aren't too concerning given the low pace of layoffs,
but the trend for both needs to be monitored," said Nancy Vanden Houten,
lead U.S. economist at Oxford Economics.
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