By Lucie Mutikani
WASHINGTON (Reuters) – U.S. job growth likely slowed to a still satisfactory level in December while the unemployment rate remained stable at 4.2%, reinforcing the Federal Reserve’s cautious approach regarding interest rate cuts this year.
The jobs report released Friday by the closely watched Labor Department is unlikely to be clouded by the weather and strike-related distortions that dominated October and November.
The labor market is expected to end the year on strong footing, even as fears grow that President-elect Donald Trump’s promises to impose or massively increase tariffs on imports and deport millions of undocumented immigrants derail this dynamic.
Those concerns were evident in the minutes of the U.S. central bank’s Dec. 17-18 policy meeting released Wednesday, which noted that “most participants noted that…the Committee might take a cautious approach in considering” new reductions.
“The labor market is not as tight as it was coming out of the pandemic, but it remains strong by all historical measures,” said Sevin Yeltekin, macroeconomist and dean of the Simon Business School. University of Rochester. “If we can avoid sharply increased tariffs and immigration policies that hamper businesses that rely on both skilled and seasonal talent, businesses will continue to create jobs.”
Nonfarm job creation likely rose by 160,000 last month after rising 227,000 in November, a reward for being severely limited by the hurricane and strikes, a Reuters survey of economists showed. Estimates ranged from 120,000 to 200,000 jobs added.
Barring revisions to October and November employment figures, that would mean the economy added 2.144 million jobs in the final year of President Joe Biden’s term, the equivalent of 179,000 posts per month. Around 3 million jobs were created in 2023.
Labor market resilience, primarily reflecting historically low layoffs, has boosted the economy by supporting consumer spending through higher wages. The average hourly wage is expected to increase by 0.3% after gaining 0.4% in November. The annual wage increase would be unchanged at 4.0% in December.
Hiring has slowed significantly following the central bank’s sharp rate hikes in 2022 and 2023. The economy is growing well above the 1.8% pace that Fed officials consider a non-profit growth rate. inflationary.
NO POST-ELECTION HIRING PROBLEM
Job gains last month were likely concentrated in non-cyclical sectors like health care and government, a trend that will prevail through much of 2024. As the business climate has recovered after the Trump’s victory in the November 5 elections, thanks to the hope of tax cuts and a relaxation of the regulatory environment, economists do not expect a sharp increase in hiring.
Business surveys also do not indicate that companies are planning to increase their workforce.
“Even though some uncertainty has eased, tariffs and immigration policy remain major unknowns,” said Andrew Husby, senior economist at BNP Paribas (OTC:) Securities. “After the 2016 election, no clear recovery in net hiring occurred until significant tax cut legislation was passed by Congress.”
Despite the dominant force, potential warning signs lurk. The unrounded unemployment rate increased gradually, reaching 4.246% in November, before rounding to 4.2%. In October, it climbed to 4.145%, rounding up to 4.1%.
“The rounded data underestimates the recent rise in the unemployment rate,” said Ernie Tedeschi, director of economics at Yale’s Budget Lab. “The unemployment rate is now within a hundredth of a percentage point of its July 2024 level. The tight rounding of October and November…means that risks around the unemployment rate in December are more upwardly oriented rather than being symmetrically oriented.”
A rise in the unemployment rate to 4.3% in July, from 3.4% in April 2023, its lowest level in five decades, was key to the Fed launching its policy easing cycle with a decline unusually large rates of half a percentage point in September. It followed up with quarter-point rate cuts in November and December, leaving its benchmark overnight rate in the range of 4.25% to 4.50%.
Last month, the Fed planned only two quarter-point rate cuts this year, compared with four it predicted in September. The key rate was raised by 5.25 percentage points in 2022 and 2023.
“As things stand, Fed officials appear to have reached a precarious level of comfort with the state of the labor market,” said Stephen Stanley, chief U.S. economist at Santander (BME:) US Capital Markets .
The government will revise seasonally adjusted household survey data, from which the unemployment rate is derived, for the past five years. Economists expect little to no impact on the unemployment rate.
The easing of labor market conditions was highlighted by a steady increase in the number of people who permanently lost their jobs, as well as the median duration of unemployment since September reaching a near three-year high of 10.5 weeks in november. This is consistent with the Job Openings and Labor Turnover Survey, which shows the hiring rate falling back to levels seen at the start of the pandemic.
“So far, the increase in permanent job losses and the duration of unemployment are not of great concern given the low pace of layoffs, but the trend in these two areas must be monitored,” said Nancy Vanden Houten , chief US economist at Oxford Economics.
