Fed pauses rate cuts as US labour market shows resilience despite inflation and economic uncertainty
The US labour market demonstrated resilience in December, with nonfarm payrolls increasing by 256,000, the largest gain since March, as reported by the Bureau of Labour Statistics.
The unemployment rate fell unexpectedly to 4.1 percent, while average hourly earnings rose 0.3 percent from November. These figures align with Federal Reserve officials' recent stance to hold off on interest rate cuts, according to BNN Bloomberg.
The December report capped a strong year for the labour market despite economic challenges such as high borrowing costs and lingering inflation.
The US economy added 2.2 million jobs in 2024, lower than the 3 million in 2023 but surpassing the 2 million created in 2019.
Annual revisions to the unemployment rate revealed greater resilience in the labour market during the summer, with the peak rate in July revised down from 4.3 percent. This revision influenced a full percentage point of rate cuts by the Federal Reserve later in the year.
Brian Rose, a senior US economist at UBS Global Wealth Management, noted, “Given the overall strength of the recent economic data, there is little reason for the Fed to consider cutting rates anytime soon. This will require softer data on both the labour market and inflation in the months ahead.”
The report’s strong payroll figures, led by sectors such as health care, social assistance, retail trade, and leisure and hospitality, underscore continued job creation.
Government employment also increased, while manufacturing saw a decline, with the sector losing 87,000 jobs in 2024, including reductions in four of the last five months. The labour force participation rate remained steady at 62.5 percent.
Despite these gains, concerns over inflation persist.
A separate survey by the University of Michigan revealed consumer expectations for long-term inflation have risen to their highest level since 2008.
Average hourly earnings increased by 3.9 percent from the previous year, with nonsupervisory employee earnings advancing by 3.8 percent annually, the slowest pace since mid-2021.
Chicago Federal Reserve President Austan Goolsbee, speaking on CNBC, stated that the robust hiring figures do not indicate an overheating economy. He suggested interest rates could still move “a fair bit lower” over the next 12 to 18 months, provided inflation remains stable.
The jobs report, based on surveys of businesses and households, included revisions that left the broader labour market outlook largely unchanged.
Bloomberg Economics noted that the data reflects stabilisation in the labour market following deterioration during the latter half of 2024.
Further revisions to the payroll survey are expected in the upcoming report. Preliminary estimates suggest that job growth for the year ending March 2024 may be adjusted downward by the largest margin since 2009.
Despite subdued layoffs, with weekly unemployment filings remaining low, major companies like BlackRock Inc. and Tyson Foods Inc. have announced job cuts for the coming year. Challenger, Gray & Christmas reported the fewest announced hires in nearly a decade for 2024.
The December report arrives amid uncertainties over President-elect Donald Trump’s proposed economic policies, including mass deportations and tariffs, which could influence the US labour market.
Additionally, declining response rates for government surveys, which reached a yearly low of 60.4 percent in 2024, have raised questions about the reliability of the data.
