U.S. payrolls grew by 256,000 in December, much more than expected; unemployment rate falls to 4.1%

The U.S. labor market added 256,000 jobs in December, a strong showing at the end of 2024, as the labor market revved up toward the end of the year.

The unemployment rate improved, inching down to 4.1 percent from 4.2 percent in November.

Forecasters had predicted the report would show 155,000 new jobs added in December.

The retail sector added 43,000 jobs in December, a sign of companies bringing on more staff to meet the demands of the holiday shopping season. The growth came in particular from retailers that sell clothes, shoes, jewelry, general merchandise, and personal care products.

October’s job growth was revised up a bit, and November’s was revised down, for a net downward revision of 8,000 jobs across the two months.

The breakdown of jobs by sector almost reads like the scorecard of a very good inning in cricket. Everybody put in a good effort:

• Government 33,000
• Leisure and hospitality 43,000
• Private education and health services 80,000
• Professional and business services 28,000
• Retail trade 43,000

Manufacturing jobs were down 13,000. But even construction put in a positive 8,000 -- like the final bowler adding a few runs to the innings total.

Big beat (256,000 versus 165,000 expectations) on the Establishment data. The beat was all in private payrolls (which is very good). There were also downward revisions, but only 8,000 (not bad). The unemployment rate drops to 4.1% (the Household survey added 478,000 – which catches up on some recent weak prints relative to the Establishment survey). Annual earnings ticked down marginally, but hours worked remained the same — call it a “wash”? I continue to believe that seasonal adjustment factors overstate data this time of the year (our main reason for thinking that we would get a strong report), but in any case, markets will have to react to this data. With signs that inflation is stubborn, if not turning higher (in response to people buying goods ahead of potential tariffs, etc.), with limited hopes of containing the deficit, and a labor market, that at least officially, remains strong, the Fed will be very slow to make the next cut. We have argued that the neutral rate may well be as high as 4% in this environment and see no reason to lower that. The front end of the curve needs to continue to price in a slow Fed, that is almost done.

 The long end of the curve needs to price in deficits, supply, and the risk that foreign buyers don’t buy as much debt, as some may not like the rhetoric coming out of Washington, D.C. (a minor, maybe even trivial, issue at the moment, but one that bears watching). Can stocks do well if 10s get into a 4.8% to 5% range? Possibly, but only if the belief that the market-positive plans of the new administration seem likely to get implemented on a timely basis. The jury is still out there. There are lots of reasons to still believe, but so much got priced in, that any doubt creeping in will impact stocks negatively. I see 10s at 4.7% to 4.9% (and am starting to get an itchy trigger finger to buy long-dated bonds). Equities should see a pullback, but this will be a “messy,” traders-oriented market, so we will likely add some equity risk on a dip of 2% or more (if we get that far today).