U.S. job growth beats forecasts in December

The U.S. labor market demonstrated unexpected strength in December, with nonfarm payrolls increasing by 256,000 jobs, surpassing economists' forecasts of 160,000. The unemployment rate dropped to 4.1% from 4.2% in November, according to the Labor Department's employment report.

The robust job growth included significant gains in healthcare (46,000 jobs), retail (43,000 jobs), leisure and hospitality (43,000 jobs), and government sectors (33,000 jobs). The economy added approximately 2.232 million jobs in President Biden's final year, following about 3 million jobs created in 2023.

The report showed positive indicators including a decrease in permanent job losses by 164,000 to 1.7 million and a slight reduction in median unemployment duration to 10.4 weeks. Average hourly earnings rose 0.3% for the month and 3.9% year-over-year.

This strong labor market performance reinforces expectations that the Federal Reserve will maintain current interest rates at the 4.25%-4.50% range during its January meeting. The Fed projects two quarter-point rate cuts this year, down from the four projected in September, reflecting concerns about persistent inflation and economic resilience.

Markets reacted with the dollar strengthening against other currencies, while longer-dated Treasury yields reached their highest levels since November 2023. Despite optimism following President-elect Trump's victory, economists remain cautious about future hiring surges, particularly given concerns about potential tariffs and immigration policies that could impact inflation.

The labor market's resilience, characterized by low layoffs and sustained wage growth, continues to support consumer spending and economic expansion above the Fed's non-inflationary growth rate of 1.8%.