Latest data shows a strong rebound in the U.S. labor market, with 256,000 new jobs added in December, significantly exceeding market expectations of 165,000, marking the largest increase in nine months, and the unemployment rate dropping to 4.1%, a new low. This performance further weakens the Fed's rate cut expectations, with the market predicting the first rate cut may be delayed until October this year.

December non-farm payroll highlights are eye-catching, labor market performance exceeds expectations.

According to a report released by the U.S. Bureau of Labor Statistics, the December non-farm data performed strongly, with all indicators exceeding expectations:

  • New jobs: 256,000, the highest monthly increase of the year;

  • Unemployment rate: dropped to 4.1%, hitting a nearly six-month low;

  • Wage growth: year-on-year increase of 3.9%, month-on-month increase of 0.3%.

Healthcare, hospitality, government, and retail sectors lead the way, while manufacturing remains weak, with a total reduction of 87,000 jobs for the year. The labor force participation rate remains at 62.5%, showing strong resilience in the job market.

Expectations for Fed rate cuts are delayed, and the market reacts strongly.

After the non-farm data was released, the market quickly adjusted its expectations for the Fed's monetary policy:

  • The Federal Reserve may delay interest rate cuts until October this year, possibly only cutting rates once for the entire year;

  • U.S. stock futures collectively fell, Nasdaq futures dropped over 1%;

  • U.S. Treasury yields soared, and the dollar index rebounded strongly.

Powell previously emphasized that as long as the job market remains robust, rate cuts will be more cautious. This non-farm data may set the tone for the January policy meeting, with future inflation data becoming key reference indicators.

What signals does the non-farm report send?

Analysts believe that although inflationary pressures still exist, the resilience of the job market indicates that the U.S. economy is unlikely to fall into recession in the short term:

  • Stable growth: 2.2 million new jobs added for the year, although lower than the 3 million in 2023, still above pre-pandemic levels;

  • Easing inflation: wage growth has slowed, indicating reduced wage inflation pressures, providing room for Fed policy adjustments;

  • Economic resilience: household surveys show a surge of 478,000 jobs in December, further verifying the robustness of the labor market.

Bloomberg commentary states that the non-farm data indicates the Fed will maintain a hawkish stance while also providing confidence in the gradual recovery of the economy.

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