Forecasts for December Jobs Report Show Softening but Still-Healthy Growth

The December jobs report is forecast to show that the labor market continues to grow at a healthy clip, though the rate of job growth has slowed significantly compared with its postpandemic peak. Analysts say a still-healthy labor market gives the Federal Reserve some breathing room to slow the pace of interest-rate cuts while inflation remains sticky and the economy remains resilient.

Overall, economists predict that the US economy added 153,000 jobs in December, according to FactSet’s consensus estimates. That’s a significant drop from the 227,000 jobs added in November, but analysts say that month’s number was skewed by labor strikes and recovery from hurricanes in October. The unemployment rate is forecast to remain steady at 4.2%.

Gus Faucher, chief economist for the PNC Financial Services Group, expects that employers added 160,000 jobs for the month, roughly in line with the consensus estimate. “That’s a good solid number consistent with continued low unemployment and the Fed meeting their mandate of maximum employment … it’s the goldilocks number that we’re looking for,” he says.

December Jobs Report Forecast Highlights

• Jobs report release date and time: Friday, Dec. 10 at 8:30 a.m. EDT
• Nonfarm payroll employment is forecast to rise 153,000 vs. a 227,000 increase in November, according to FactSet
• The unemployment rate is forecast to stay steady at 4.2%.
• Hourly earnings are predicted to rise 0.3% on a monthly basis, down from 0.4% in November.

Faucher expects a small increase in manufacturing jobs as the sector continues rebounding from labor strikes. “Manufacturing has been soft lately,” he says, as the pandemic boom in demand for goods has slowed and imports have increased. High interest rates have also weighed on activity. He will also watch for continued gains in the construction industry, which is sensitive to interest rates but has held up well in recent months.

Keep an Eye on Wage Growth

Faucher says Fed officials are likely paying close attention to data on average hourly earnings. Earnings that are rising too quickly could exacerbate inflationary pressures.

On an annual basis, wage growth has ticked up from 3.6% in July to 4.0% in November. Faucher says wage growth around 3.5% on an annual basis is consistent with the Fed’s 2% inflation target. “If we see wage growth continuing to accelerate,” he explains, “then that’s a little more worrisome from the Fed’s perspective. That may mean they can’t ease as quickly as they might otherwise like.”

What’s Ahead for the Labor Market in 2025?

Overall, analysts say data on the labor market points to a trend compared with the red-hot growth in the aftermath of the pandemic. They emphasize that this slowdown is not necessarily unhealthy.

“Hiring may be easing up, but it is not collapsing,” Wells Fargo economists wrote in a note to clients this week. “And while businesses are not looking for as many workers as they were a year or two ago, they are not laying off workers in droves either.” They expect this “slow but steady descent” to continue in 2025, with the unemployment rate hovering around 4.3% this year and job growth settling at around 125,000 per month.

When Will the Fed Cut Rates Again?

The Fed surprised investors in December when it slashed its forecasts for rate cuts in 2025 in half. Analysts say a combination of sticky inflation, policy uncertainty, and the labor market remaining healthy will allow the central bank to dramatically slow the pace of cuts this year.

In a note to clients this week, analysts at Bank of America suggested that strong labor market data could end the Fed’s cutting cycle entirely, especially if the unemployment rate remains at 4.2%. Their base case is two more cuts this year, but “the onus will be on the data to justify additional easing.”

Investors see a roughly 1 in 3 chance that interest rates will remain at their current target range of 4.25%-4.50% through June, according to bond futures data from the CME FedWatch Tool. Bond traders put the odds of a 0.25-basis-point cut that month at 44%.