U.S. non-farm payrolls exceed expectations significantly in December, with the unemployment rate declining

The U.S. labor market showed surprising strength in December, closing the year on a solid footing. Nonfarm payrolls rose by 256,000, far surpassing economists’ forecasts of a 160,000 increase. This followed a revised gain of 212,000 in November, down from the previously reported 227,000.

The unemployment rate fell to 4.1%, signaling a resilient labor market despite the Federal Reserve’s rate hikes throughout 2022 and 2023.

Wages continued to grow, with average hourly earnings increasing by 0.3% in December, following a 0.4% rise in November. Over the year through December, wages grew by 3.9%, slightly below the 4.0% annual rate reported in November. Higher wages have bolstered consumer spending, a key driver of economic growth, even as signs of broader hiring slowdown emerge.

The labor market’s strength is fueling economic growth beyond the Fed’s estimated non-inflationary rate of 1.8%. However, uncertainty persists over potential policy changes under President-elect Donald Trump, including tariffs and large-scale deportations of undocumented immigrants, which could disrupt the economic trajectory.

Minutes from the Federal Reserve’s December policy meeting reflected cautious optimism. Most officials supported a measured approach to further rate reductions. The Fed cut its benchmark rate by 25 basis points in December, lowering it to a range of 4.25%-4.50%, totaling 100 basis points of easing since September.

Looking ahead, the Fed now anticipates only two rate cuts in 2025, down from the four initially projected, reflecting confidence in the economy’s resilience despite ongoing inflationary pressures.