Job Growth Soars, Uncertainty Looms

Good news for the economy is sometimes not so good for investors. It’s early in the year, so let’s start with the positive: job creation was much better than expected in December. There were 256,000 new positions added and with minor revisions to the previous two months, the total number for 2024 was a solid 2.232 million. That result means that the labor market has finally returned to its pre-pandemic average (2015-2019) of 2.285 million jobs per year. [The COVID distortion amounted to devastating employment losses in 2020 (-9.27 million), followed by a massive snap back from 2021-2023 (+7.25 million, +4.528 million, +3.013 million, respectively)].

Now for the not-so-good news: the December result makes it more likely that the Federal Reserve will stand pat at its next policy meeting later in the month. At the December meeting, the central bank projected that it would make two quarter point reductions during the 2025 calendar year, but those projections are always subject to data. Given the strength of recent economic reports, including the December jobs report, it looks like the Fed will be comfortable keeping interest rates higher for longer, until the inflation rate returns to its target of 2 percent.

Investors were not happy about the idea of interest rates remaining elevated, which caused them to sell stocks and bonds. But let’s stick to the good news for a moment. The unemployment rate edged lower to 4.1 percent for the right reason, more people were able to get jobs (478,000), despite a 243,000 increase in the labor force. Additionally, while annual wages grew more slowly than in the previous month, a 3.9 percent increase is still well-ahead of the current 2.7 percent inflation rate (as of November). That differential should help those who seek to rebuild their savings and to pay down debt.

With 2024 behind us, what does the job market look like for 2025? Overall, consumers and businesses are on track to spend enough to keep the economic expansion going. Most analysts have penciled in GDP growth of about 2.5 percent, which should allow job growth to be positive, though maybe not quite as strong as 2024. But there is a big asterisk to this view: policies enacted by the incoming Trump administration could cloud this partly sunny view. The promise of tariffs could reignite inflation, and immigration curbs might reduce the labor supply. Together, those early 2025 actions would change the outlook for overall growth and jobs. Paul Ashworth of Capital Economics notes that “with only 10 days until the inauguration, there is still massive uncertainty about the details of the policies that the incoming Trump administration will adopt.”