US jobs data expected to support Fed narrative

by Augusta Saraiva

US employers likely added a healthy number of jobs in December and the unemployment rate was unchanged, showcasing a labor market that for another year defied expectations for a sharper slowdown.

Nonfarm payrolls probably rose by 165,000 last month, according to the median estimate in a Bloomberg survey of economists. That reading, which would mark a step down from November’s 227,000 advance, would add fuel to the narrative that the labor market continues to moderate only gradually.

Such figures, due Friday in a monthly jobs report from the Bureau of Labor Statistics, would support the Federal Reserve’s intent to shift focus back to inflation after cutting interest rates by a full percentage point last year to keep the labor market from rapidly deteriorating.

Following those moves, Fed Chair Jerome Powell indicated central bankers can be cautious about further rate cuts as long as the job market remains solid.

“A pause in January is clearly the base case” for the Fed, Bank of America Corp. economists Shruti Mishra and Aditya Bhave said in a Jan. 6 note previewing the numbers. “We see a risk that the cutting cycle could be over if the labor market stops gradually cooling off.”

While forecasts range from 100,000 to 268,000, if the report comes in line with the median estimate, that would mean the US economy added a robust 2.1 million jobs in 2024. That would be below the 3 million increase in 2023 but above the 2 million created in 2019.

Under the surface, however, the job market has been showing some signs of weakness. Monthly hiring has often been concentrated in a handful of sectors, and the unemployment rate has edged higher. Moreover, the unemployed are increasingly having a harder time finding new jobs as companies announced the fewest US hires in 2024 in almost a decade.

“December’s payroll print is likely to be robust — and we do acknowledge that as an encouraging signal of improvement in the labor market,” Bloomberg economists Anna Wong and Estelle Ou said in a Jan. 9 preview of the report. “Still, we wouldn’t conclude with any confidence that the labor market is heating up again.”

UNEMPLOYMENT RATE

Economists have been closely tracking the unemployment rate, especially after back-to-back increases earlier in 2024 triggered a popular recession indicator. Forecasters expect that metric to end the year at 4.2% — unchanged from November but above the 3.7% rate at the start of the year.

“The unemployment rate remains the most important aspect of monthly employment data,” Citigroup Inc. economists Veronica Clark and Andrew Hollenhorst said in a Jan. 6 note. “We expect the unemployment rate rising above 4.5% in the next few months to cause a sharp repricing of Fed rate cuts this year.”

The jobs report is comprised of two surveys — one of businesses and the other of households. Friday’s report will incorporate annual revisions to the latter, which informs statistics like the unemployment and participation rates.

“The process typically yields minimal revisions to the unemployment rate, which we expect holds this time around,” Andrew Husby, senior US economist at BNP Paribas, said in a Jan. 3 note.

Next month’s report will include benchmark revisions to the business survey, as well as new seasonal factors, which tend to be more consequential to the overall labor market picture. Preliminary benchmark data published in August indicated the US may have added 818,000 fewer jobs in the 12 months through March 2024 than initially reported, and subsequent Philadelphia Fed estimates suggested the weaker employment trend likely extended into the second quarter.

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