December’s US Employment Report provides the Fed with plenty of room to stay on hold in the coming months and assess how the policies of the incoming administration affect growth and inflation outlook.

US payrolls finished 2024 with a robust 256,000 jobs added, as employment expanded across private-sector service industries. The headline unemployment rate dipped back to 4.1%, down from 4.2% prior. Wage growth remains elevated going into 2025, rising 0.3% in December for a pace of 3.9% year-over-year.

Over 2024, monthly payrolls grew by 186,000 on average. That pace exceeds 2019 and continues to reflect a resilient labor market despite a slowing hiring environment in mid-2024. Looking ahead to 2025, the US labor market is expected to remain stable, with the potential for hiring to accelerate later in the year as uncertainty about the election outcome clears. Indeed, CEO Confidence and Consumer Confidence have recently ticked up and job openings rose unexpectedly in October and November to reach more than 8 million vacancies for the first time since May.

Trusted Insights for What’s Ahead^®:

• December’s Employment Report finished 2024 with strength: a robust 256,000 jobs added to average 186,000 per month over 2024, aligning with pre-pandemic trends from 2016–2019.
• The unemployment rate fell to 4.1% in December, moderating after peaking at 4.3% mid-year. Indicators such as claims, layoffs, and involuntary part-time work have also shown stabilization.
• Average hourly earnings growth stands at 3.9% year-over-year. The slight reacceleration in service-sector wages seen this summer appears to have moderated, underlying Fed officials’ suggestion that wages are no longer a significant source of inflationary pressure.
• Upcoming BLS benchmark revisions could reduce early 2024 job gains by approximately 60,000 per month. However, stability in unemployment and workforce churn in the Household Survey indicate that the underlying pace has been sufficient to set the labor market in better balance going into 2025.
• The US labor market remains resilient with few signs of continued softening, and is positioned for continued strength in 2025 as uncertainty clears and confidence continues to improve.

Figure 1. Payroll growth slows over 2024 but at healthy pace

Report Highlights:

2024 Payroll Growth Returns to Pre-Pandemic Levels
December delivered a broad-based 256,000 in payroll gains, with employment expanding across industries breaking from recent concentration. Healthcare & social services added 70,000 jobs, in addition to retail trade (+43,000), leisure & hospitality (+43,000), professional and business services (+28,000). Finance, technology, and transportation & warehousing each added 10,000. Goods-producing firms shed employment overall, with manufacturing falling 13,000 driven by durable goods. Construction added 8,000 jobs in December.

Payroll growth over 2024 averaged 186,000 with December’s report. Despite the US economy beginning 2024 with 5 million more jobs than pre-pandemic, that pace indicates the labor market is creating jobs at roughly the same rate as 2016-2019.

The benchmark payroll revisions BLS will release next month cast some doubt on the underlying pace of job creation through 2024. Preliminary estimates showed that 800,000 total jobs (or 60,000 monthly) could be cut from the period 2Q2023—1Q2024. Even if we discount 60,000 from 2024 (to equal a 126,000 average)—this should not alter our outlook much. As show below, Household Survey measures which are unaffected show that the current pace has kept unemployment and workforce churn in balance.

Job Finding Rate Shows Rebound
Job-finding showed a reversal of November’s concerning datapoint, but continues to be a key indicator for 2025. Figure 2 shows that the job-finding rate (unemployed into employed as % of unemployed) recovered to a more normal level in December (25.4%) following a large drop in November (21.5%). With the Household Survey showing similar strength as the Establishment, household employment grew 478,000, with unemployed falling 235,000 while the labor force expanded 243,000.

Figure 2. Job finding rate shows rebound

Rising Unemployment Moderated in Late 2024
The unemployment rate fell to 4.1% in December. Since July when unemployment had reached 4.3% after a steady rise, job growth has firmed outside of October’s disrupted report. After similar rises earlier this year, continuing (actual) UI claims have held in the same range since September, while the 4-week average of initial claims in the first week of January was the lowest since April. Other measures that could indicate weakening also remain low, including those involuntarily part-time. While Fed officials will continue to keep a close eye on metrics of layoffs and unemployment, it is encouraging that each of these indictors has shown slight moderation to enter 2025.

Figure 3. Unemployment falls with flat measures of claims and layoffs

Despite December’s notch down in the unemployment rate, the duration of unemployment spells continues to expand. This has recently been led by a growing number of unemployed for 27 weeks or longer—a point at which UI benefits are complete in most states. That group shrunk in December by 103,000, the largest decline since November 2023.

Figure 4. Average duration of unemployment rising

Elevated Wage Growth Easing Only Slowly
Average hourly earnings continue to grow at an elevated pace of 3.9% year-over-year, but the potential for reacceleration may be moderating. Fed Chair Powell recently stated that they no longer see the labor market is no longer a source of inflationary pressure. December’s report will not shift that confidence, as service-sector earnings growth has eased from the uptick seen earlier in 2024.

We expect wages to remain elevated above historical norms into 2025, reflecting a culmination of demographic and talent challenges amid a still-tight labor market. However, the labor market now sits in substantially better balance than a year ago.

Figure 5. Wage growth’s rebound shows moderation

Conclusion
The December jobs report underscores the resilience of the US labor market as 2024 closes. With broad-based job gains and improving unemployment, there is no immediate indication of a labor market continuing to soften. Improving consumer and business confidence could translate into increased activity next year. While risks like slowing labor force growth and policy uncertainties persist, the labor market appears stable entering 2025 and poised for continued strength as uncertainty clears.