Economic Update: January 2025

The US economy has been churning out jobs at a steady rate: in total 2.2 million jobs were created last year. That number has tapered since the market generated 3 million in 2023, 4.5 million in 2022 and a record 6.4 million in 2021, however last year’s average monthly job gains still exceeded the average of 182,000 in the handful of years just before the pandemic.

Growth in December was bolstered by the usual sectors: health care, government, social assistance, and leisure and hospitality. After an unusually lackluster November due to a shortened period between Thanksgiving and the holiday season, retail sales rebounded in December and the sector added 43,000 jobs. While December beat expectations overall, some sectors continue to struggle: “Manufacturing is still getting crushed,” noted Brian Jacobsen, chief economist at Annex Wealth Management. “The macroeconomy may be fine,” he said, “but each individual’s microeconomy could look very different.”

​Nominal wage growth came in at 3.9% and does not appear to be re-accelerating as it remains roughly where it has been for three consecutive months. From a wages perspective, growth is in line with Fed inflation targets, though as quit rates continue to decline, we may see further deceleration in wage growth. The average workweek hours remained steady at 34.3, above the four-year low of 34.2 last year. Notably, both the quit rates and layoffs remain low – at 1.9% and 1.1% respectively, they are both well below pre-pandemic levels. What remains to be seen is how this will affect job growth over time: employers have less need to hire if people don’t quit.

Diving deeper into the report we can find other encouraging details: a decrease in the unemployment rate came from more people finding employment, rather than more people choosing to exit the workforce. A broader measure of unemployment, which includes individuals working part-time but who would prefer full-time work seems to have leveled off after reaching a peak of 7.8% last summer. In addition, temporary help services have started adding jobs in recent months, reversing a multi-year downward trend, and suggesting that employers anticipate growing demand and are adding contingent labor accordingly.

All in all, economists found little fault with December’s report:

• “American exceptionalism is the primary takeaway from one of the more remarkable years in labor market dynamics over the past half a century,” wrote Joe Brusuelas, chief economist at the accounting and consulting firm RSM.
• “It is hard to say anything negative about the details of this report,” added Thomas Simons, chief US economist at the investment banking firm Jefferies.
• “This employment report really crushes all expectations. It kind of wipes out the summer slump in payrolls we saw from June to August before the big Fed rate cut in September,” said Scott Anderson, chief US economist at BMO Capital Markets.

Yet last month’s story can be interpreted with a more pessimistic lens…depending on who you ask. Good news for the economy can be bad news for investors, as the saying goes, and markets slumped last Friday after the report’s release. December’s data underscores that the economy and hiring were able to grow at a solid pace in spite of persistently high interest rates, making the Fed less likely to issue more rate cuts in the near term. Too much of a good thing could prove to be bad for Wall Street by keeping interest rates high – but if you were worried about the potential for recession, December’s good news is, in fact, good news.