December 2024 jobs report:

Job growth was much stronger than expected in December, likely giving the Federal Reserve less incentive to cut interest rates this year.

Farm payrolls rose 256,000 in the month, up from 212,000 in November and above the Dow Jones consensus estimate of 155,000. Bureau of Labor Statistics he announced on Friday.

The unemployment rate fell to 4.1%, a tenth of a point below expectations. An alternative measure that includes discouraged workers and those holding part-time jobs for economic reasons fell to 7.5%, down 0.2 percentage points and the lowest since June 2024.

Stocks fell Treasury yields plunged after the report as traders priced in a lower likelihood of a Fed rate cut this year.

“This is a hot report,” said Dan North, senior economist for North America at Allianz Trade. “You have to think that (Fed Chairman) Jerome Powell is breathing a sigh of relief because his job just got a little easier. Inflation hasn’t moved anywhere for months, so there’s no incentive to cut rates. Now. you get this (jobs report), so you don’t need to cut rates to stimulate the economy.”

The report caps a year of month-on-month employment growth, though it has been inconsistent and sometimes questionable whether there was a recession. However, the last two months showed that the labor market is still strong as the Fed anticipates its next moves in monetary policy.

One area Fed officials stressed is not a source of inflation is the labor market, where wages grew slightly less than expected.

Average hourly earnings rose 0.3% in the month, in line with forecasts, but the 12-month gain of 3.9% was slightly below expectations and indicates that wage inflation is at least becoming less of a factor. The average working week has again remained stable at 34.3 hours.

“You’ll never hear me complain that we got 250,000 jobs,” Chicago Fed President Austan Goolsbee said on CNBC’s “Squawk on the Street.” “I think it’s a strong jobs report. It makes me more comfortable that the labor market is stabilizing at something like the full employment rate.”

Job growth came from the familiar sources of health care (up 46,000), recreation and hospitality (43,000) and government (33,000).

Retail trade also posted a big gain, up 43,000 after losing 29,000 in November during the holiday shopping season. The sector saw payroll growth of 2.2 million for the full year, down significantly from 2023 earnings of 3 million.

Previous months’ revisions were lower than the recent trend. The October count increased the change from 7,000 to 43,000, while the November count was down 15,000 from the previous estimate.

At their December meeting, Fed officials described the labor market as mostly healthy despite the slowdown. The Fed voted at the meeting to cut its key lending rate by a quarter of a percentage point, signaling a slower pace of tapering.

Markets expect the Fed to hold a meeting later this month, after expectations of a single cut in futures jobs reports this year. The market’s probability of a single rate cut rose to 68.5% after the jobs report, according to the CME Group’s FedWatch gauge.

Goolsbee said he still expects rate cuts this year as long as data flow remains consistent.

“The surprising jobs report certainly won’t make the Fed any less likely,” said Ellen Zentner, chief economic strategist at Morgan Stanley Wealth Management. “All eyes will now turn to next week’s inflation data, but even a downward surprise in those numbers won’t be enough to get the Fed to cut rates anytime soon.”

Central banks have been concerned recently about the pace of inflation, which has remained above the Fed’s 2% target, largely because of very high housing costs, as well as the prices of some goods.

The household report used by the BLS to calculate the unemployment rate presented an even stronger employment picture. This number increased by 478,000 during the month, as the labor force increased by 243,000 and the proportion of people of working age working or looking for employment remained at 62.5%.

Full-time employment increased by 87,000, and part-time workers by 247,000. 235,000 unemployed people have dropped.

The length of unemployment rose to 23.7 weeks, the highest level since April 2022. However, those who were out of work for 27 weeks or more fell to 1.55 million, down 103,000.