A stronger-than-expected December jobs report might curtail the Federal Reserve's plans for interest rate cuts later this year, experts say, as rising wages continue to be a source of inflationary pressure.
U.S. nonfarm payrolls expanded by 216,000 in December, easily topping economists' estimate for the creation of 175,000 jobs, the Bureau of Labor Statistics said Friday. Government, healthcare and social assistance were the areas adding the most new employees.
The unemployment rate, which is derived from a separate survey, was unchanged at 3.7%. Economists forecast the unemployment rate to tick up to 3.8%, but the labor force participation rate, at 62.5%, decreased by 0.3 percentage point in December.
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If there was any sort of uncomfortable surprise in the jobs report, it was that hourly wages increased 0.4% month-over-month after rising just 0.2% in November. That was hotter than economists were expecting, and suggests inflationary pressures won't subside as soon as hoped.
Stocks rallied hard into the end of last year in anticipation of the central bank cutting interest rates in 2024 – but the December jobs report had at least some folks rethinking those bets. As of January 5, interest rate traders assigned a 62% probability to the Fed enacting its first quarter-point cut in March, according to CME Group's FedWatch Tool. That figure stood at almost 70% prior to the release of the nonfarm payrolls report.
With the December jobs report now a matter of record, we turned to economists, strategists and other experts for their thoughts on what the data means for markets, macroeconomics and monetary policy going forward. Please see a selection of their commentary, sometimes edited for brevity or clarity, below.
Jobs report: the experts weigh in
"Inflation, while dissipating, is not dead yet. The labor market added 216,000 new jobs in December, well above the 175,000 estimate. The biggest increase was in government, which added 52,000 jobs. While the economy has been growing, government employment has been stagnant, so this uptick made a lot of sense to me. Outside of the unexpected increase in government hiring, the private sector was in line. Unemployment remained at 3.7%. In addition, the previous two months showed a downward revision of 71,000 jobs, weaker than thought earlier. So this report came in fairly balanced. The worst surprise was an uptick in hourly wages to 0.4% (was 0.2% last month). The bottom line was this report had something for everyone and is not expected to move the needle in either direction. As I write, both bonds and stocks are rallying again. We do expect the Fed to cut rates, but not until the second half of the year." – Eric Diton, president and managing director of The Wealth Alliance
"The economy closed out the year on a high note, with stronger than expected labor market trends. As a result, the Fed will be encouraged to maintain a 'higher for longer' stance with regards to interest rate policy. Market participants who thought the Fed will be aggressively cutting rates in 2024 will need to walk back their forecasts." – George Mateyo, chief investment officer at Key Private Bank
"While the non-farm payroll number exceeded estimates at 216,000, revisions to previous months totaled -71,000, meaning the net new jobs were within the range of the 150,000 consensus. It should be noted the initial estimate of new jobs has been revised lower ten of the past eleven reports. The headline unemployment rate was unchanged at 3.7% versus an expectation of a slight increase to 3.8% as the labor force participation rate declined. When thinking about inflation, the average hourly earnings number came in a bit hot at 0.4% versus 0.3%, which puts the year-over-year number at 4.1%. The good news for the economy is this report signifies the economy is holding in pretty well, while also reminding the market that inflation, while declining, might not go quietly. In aggregate this report doesn't change much." – Steve Wyett, chief investment strategist at BOK Financial
"The labor market and economy have normalized and are in a healthy place – not too hot, not too cold. There was some mixed data, including falling participation, but this might be due to the seasonal adjustments. Wage growth was strong, coupled with falling inflation means real incomes continue to move higher – which is good for the economy." – Sonu Varghese, global macro strategist at Carson Group
"The jobs report was better than expected across the board. Wage pressures are a focus for inflation as they were specifically mentioned in the most recent minutes released this week from the FOMC. Continued strong wages and a strong labor market may cause the Fed to leave rates where they are for a longer period of time than markets are expecting." – Stephen Kolano, managing director of investments at Integrated Partners
"The U.S. labor market closed out 2023 with a surprisingly strong December report. Coming off an extremely strong 2022, last year's labor market was very solid overall with continued employment advances across the board. The strength of the labor market has helped stave off the recession that was anticipated by most economists. Because of today's strong jobs number, the Fed cut in March now seems less likely." – Eric Merlis, managing director and co-head of global markets at Citizens
"This morning's jobs report was mixed at best from the market's perspective. Jobs came in somewhat stronger than expected, but recent months were revised downward. Year-over-year wages were up 4.1%, higher than anticipated. Labor force participation unfortunately declined from a post-pandemic high in recent months. Overall, the report signals continued tightness in the labor force and upward pressure on wages. While it's important not to put too much emphasis on a single month's data, directionally this jobs report makes it somewhat less likely that we will see as many rate cuts in 2024 as the market is expecting. " – David Royal, chief financial and investment officer at Thrivent
"The jobs report coming in at over 200,000 is a clear signal that the economy may be enjoying a bounce coming out of Q4 2023. On the back of a durable job market we are seeing higher-than-expected consumer confidence, which has led to higher consumer spending all the way through the holiday season with retail sales up nearly 5%. This makes sense, as wages are up almost the same amount over 4% from today's report. This is generally good economic news and it could mean that the Fed's forecast for GDP declining significantly over the next couple of quarters is incorrect." – Brian Mulberry, client portfolio manager at Zacks Investment Management
"Employees still have the upper hand, and make no mistake, that advantage is here to stay for the foreseeable future. Right now, there are approximately three jobs for every two people available to take them. The organizations with a track record of investing in their people and creating great workplaces are always going to have an easier time retaining their existing workforce and hiring new employees. We have noticed employees are not job-hopping as much as they used to. The great resignation is behind us and people are seeking more stability. It's a tough hiring environment for employers, especially for frontline roles. Businesses need to continue to work hard to stay staffed up." – Chris Todd, CEO of UKG
"Good news for Main Street is bad news for Wall Street this morning. But it might not stay that way for long as investors focus on how strong employment can support earnings over time. Today's report was a trifecta of hawkish news, with payrolls and wage growth higher than expected and unemployment light. It dampers some hopes of a super dovish Fed but doesn't undo the process of rates coming down this year. Recent manufacturing reports ISM have shown slack in the economy and the ability to grow without inflation." – David Russell, global head of market strategy at TradeStation
"Markets were hoping for another thread-the-needle type report, where the labor market showed steady growth yet slowed enough to support lower rates, but the December report failed to deliver this scenario. In fact, today's jobs report underscores the continued strength in the labor market as non-farm payrolls increased by 216,000 in December. For the Federal Reserve, the labor market remains too strong to support immediate rate cuts, and the uptick in average hourly earnings from 4.0% to 4.1% shows lingering inflationary pressures. Treasury yields jumped following the report, and we think that the stronger than expected report may give the FOMC the ammunition necessary to prolong higher rates and push rate cuts further down the road." – Austin Schaul, head of research at Avantax
"Today's reported job numbers are reflective of the resilience in our current economy. Consumer demand is strong, businesses are still hiring, albeit at a slower pace, and wages remain competitive. As a result, we may reset our expectations around the timing of rate cuts for the latter half of this year as labor market indicators remain strong." – Frank Sorrentino, CEO and founder of ConnectOne Bank
"The labor market is finally recovering from the gut punch delivered by the COVID-19 pandemic. According to RedBalloon research, the pandemic cost the U.S. economy 4 million jobs over the last three years. This also explains why job postings remain stubbornly high despite a tight labor market. 2023 was the first normal employment trend year since COVID." – Andrew Crapuchettes, CEO at RedBalloon
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