December Jobs Report Topples Expectations: Robust Payroll, Wage Growth Jeopardize Fed's March Interest Rate Cut

The pace of job growth in December surpassed economist predictions, suggesting that the strength of the U.S. labor market was more significant than originally anticipated, further bolstering the market’s belief that the economy could successfully achieve a soft landing.

According to the Bureau of Labor Statistics’ December jobs report, non-farm payrolls (NFPs) experienced a growth of 216,000 in the last month of 2023. This marked an improvement from the downwardly revised 173,000 reported in November and exceeded the anticipated figure of 170,000.

Prior to the release of the jobs report, market expectations were factoring in a total of 140 basis points in rate cuts by December 2024, implying at least five rate reductions of 25 basis points each.

December Jobs Report: Key Highlights

• Alongside the NFP data, the December jobs report revealed a steady unemployment rate at 3.7%, below the expected 3.8% .
• The pace of annual wage growth strengthened, with average hourly earnings rising 4.1% compared to December 2022, up from November’s 4% pace, and above estimates of 3.9%.
• On a monthly basis, the average hourly earnings saw a 0.4% rise, in line with November’s rate and above the anticipated figure of 0.3%.

Market Reactions

Minutes after the release of the November jobs report, the U.S. dollar index, as tracked by the Invesco DB USD Index Bullish Fund ETF UUP, rallied 0.5%.

Treasury yields spiked, with the policy-sensitive 2-year Note yield rising 7 basis points to 4.46%.

An hour before the Wall Street trading session began, equity futures were experiencing a decrease, with the Nasdaq 100 showing a 0.5% decline.

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