The Labor Department's Friday release of December employment data showed a strong finish to the year for hirings, surpassing expectations and highlighting the resilience of the U.S. labor market.
Sam Williamson, Senior Economist at First American, said the report “blew by expectations, capping a year of resilient, albeit slower, job growth.”
Resilient Job Growth
Employers added 256,000 non-farm payroll jobs in December, significantly exceeding forecasts of 153,000. Job gains were widespread across several key sectors:
- Health Care: +46,000 jobs
- Retail: +43,000 jobs, rebounding from a 29,000 loss in November
- Leisure and Hospitality: +43,000 jobs
- Government: +33,000 jobs
- Business Services: +28,000 jobs
Labor force participation held steady, and the unemployment rate edged down to 4.1%. Furthermore, long-term unemployment, which tracks individuals out of work for more than six months, declined to 1.6 million after several months of increases.
Williamson notes that the robust report “empowers the Fed to take a more hawkish stance, providing cover for the expected pause in rate cuts at January's FOMC meeting.”
After cutting rates by 100 basis points in late 2024, the Federal Reserve is expected to adopt a more cautious and gradual approach to future rate adjustments.
“The January pause and a more gradual pace of rate cuts will allow the Fed to assess the impact of the 2024 cuts and gain clarity on the incoming administration’s fiscal policies and the 119th Congress’ legislative priorities,” Williamson explains.
Mortgage Rates Outlook
Amidst inflation fears, the December numbers indicate that the next round of Federal Reserve interest rate cuts are farther down the road than the mortgage market would like as financing costs stay high and borrowers struggle with affordability.
The strong labor market is expected to moderate mortgage rates over the coming year. Williamson forecasts rates drifting modestly lower, settling in the mid-to-low 6% range by year-end. Any unexpected economic or labor market downturns could push rates lower.
