Key takeaways
In what proved to be the strongest month of 2024, the U.S. economy added more than 250,000 jobs in December.
The unemployment rate declined modestly to 4.1%, remaining below 2024’s peak levels.
Markets initially reacted negatively to the surprisingly strong jobs report, seeing it as a signal that interest rate cuts could be delayed.
In 2024’s final month, the U.S. job market showed continued strength. According to December’s jobs report, the U.S. economy created 256,000 new jobs, on top of a gain of more than 200,000 new jobs in November.1 It was the largest monthly jobs gain of the year. Recent job market-related data indicates that the U.S. economy remains on solid ground, although year-to-year job growth continues to decelerate. It also signals to the market that Federal Reserve (Fed) interest rate cuts, which began in September 2024, could be put on hold.
Stocks declined significantly after release of December’s jobs figures, apparently in response to the possibility that interest rates may remain higher for longer.
“The labor market looks set to continue on a positive path,” says Rob Haworth, senior investment strategy director for U.S. Bank Asset Management. “We’re not seeing companies let go of many people and job openings continue to outpace the number of unemployed people.” Another recent labor market data point confirms Haworth’s view, as November job openings held steady at 8.1 million, outpacing the number of unemployed Americans seeking work.2
As has frequently been the case, the month’s biggest job gains came in the healthcare industry, adding 46,000 positions, although that numbers was lower than this year’s 57,000 monthly average for new healthcare positions.1 “Healthcare is an area where we’re chronically understaffed,” says Tom Hainlin, senior investment strategist with U.S. Bank Asset Management. “It is an industry with more than one million job openings, so there is more opportunity for continued growth, but employers can’t find enough workers.”
Other major contributors to December’s job gains included retail (+43,000 jobs in December), leisure and hospitality (+43,000 jobs), government employment (+33,000) and social assistance (+23,000).
Along with improved job growth, the nation’s December unemployment rate ticked slightly lower to 4.1%.1 “When taking a more historical view of the unemployment rate, a number in the low 4% range is quite favorable,” says Haworth.
The unemployment rate stayed below 4% for more than two years, but then in May 2024, it crossed the 4% threshold.3
Economists closely monitor the weekly initial jobless claims report as a timely measure of potential labor market trends. Initial jobless claims stood at just 204,000 for the week ending January 4, 2025. This represents the lowest initial weekly jobless claims since February 2024 and is down from a 2024 high of 260,000 initial weekly jobless claims, reported in early October. Weekly initial jobless claims rose to as high as 242,000 in early December, declining considerably since.4 “If you look at long-term history, sub-300,000 initial weekly jobless claims are considered a fairly healthy level for the economy,” says Haworth. “Given recent jobless claims trends, there’s no reason to expect employment numbers will worsen in any meaningful way anytime soon.”
“When taking a more historical view of the unemployment rate, a number in the low 4% range is quite favorable,” says Rob Haworth, senior investment strategy director for U.S. Bank Asset Management.
Markets also track the labor force participation rate, considered a key barometer of the broader economy's health. This number hasn’t changed much over the past year, and in December, repeated November’s 62.5% reading. Throughout 2024, the labor force participation rate remained in a narrow range of 62.5% to 62.7%.1 “Improving labor participation is one way to address tightness in the labor market that’s propping up wage gains,” says Matt Schoeppner, a senior economist at U.S. Bank.
According to the December jobs report, average hourly earnings increased 3.9% over the past year, a modest drop-off from November’s 4%.1 Notably, wage gains, on average have exceeded the inflation rate, as measured by the Consumer Price Index, which currently stands at 2.7% for the past 12 months (ending in November).3
In September 2024, the Fed cut the federal funds target rate (a rate used by banks in overnight lending that influences mortgage rates and other consumer credit products) by 0.50%, its first cut in more than four years. The Fed’s action was partly in response to signs of labor market weakness. The Fed subsequently cut rates by another 0.50% before year’s end, but then signaled that it was scaling back its planned 2025 rate cuts.5 In recent comments, Fed Chair Jerome Powell stated, “The U.S. economy is in very good shape – the downside risks appear to be less in the labor market, growth is definitely stronger than we thought, and inflation has come in a little higher.”6
Investors continue to closely track jobs data as an important economic indicator and a potential signal about Fed monetary policy. Fed rate cuts are considered a way to boost the economy, help support the stock market rally that began in 2023, and also benefit the bond market.
Talk with a wealth professional if you have questions about your personal financial circumstances or investment portfolio.
The job market refers to the marketplace where individuals seek work and employers seek workers. The strength of the job market is considered one important measure of the current health of the broader economy. If more jobs are being created and demand for labor is high, it tends to reaffirm the presence of an expanding economy. By contrast, higher unemployment levels and low job growth (or a decline in job growth) indicate a slowing economy.
The unemployment rate, reported monthly by the U.S. Bureau of Labor Statistics, provides significant insight into the health of the nation’s economy. Generally, the lower the unemployment rate, the stronger the economy is likely to be. The unemployment rate is also one of the mostly closely followed indicators. It’s important to note that the unemployment rate reflects people who are out of work but still seeking employment. It does not reflect others who have stopped looking for work or consider themselves no longer in the labor force.
When the unemployment rate moves higher, it indicates potential weakening of the economy. Consumers may consider holding back on purchases if they have concerns that they, themselves, could face unemployment soon. If that occurs, it can potentially contribute to further economic weakness. When unemployment is low, it’s a good indicator that the economy is strong and expanding.
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