The US labour market closed 2024 with a “strong” performance, adding 256,000 jobs in December, above the 160,000 forecast, as unemployment steadied at 4.1% and wage growth moderated.
The unemployment rate fell to 4.1%, while wage growth eased, highlighting economic resilience amid cooling inflation, according to asset management experts.
“This appears to be the goldilocks of labour market releases,” said Nathaniel Casey, investment strategist at wealth manager Evelyn Partners. “Employment is expanding without causing wages to surge, which helps moderate inflation risks.” He also noted that other labour metrics (Automatic Data Processing and Job Openings and Labour Turnover Survey reports), pointed to continued strength in job creation and vacancies, further solidifying the US economy’s momentum. According to Casey, strong payroll data underscores US economic resilience but likely halts the Fed’s cutting cycle, with markets expecting no further cuts in the first half of the year.
The labour market’s performance has prompted money markets to scale back expectations for Federal Reserve rate cuts in 2025. “The Fed’s not cutting any time soon,” said Nigel Green, CEO at financial adviser deVere Group. “The robust labour market and persistently high inflation provide compelling reasons for the Fed to maintain its current policy stance.” Green advised investors to recalibrate their strategies, emphasising the “attractiveness” of fixed income, with higher yields offering compelling opportunities, and sectors resilient to higher borrowing costs, such as tech and healthcare.
December’s payroll data also highlighted stability in the unemployment rate, which has been between 4.1% and 4.2% for seven consecutive months. “This kind of steadiness is unusual and reflects the labour market’s balance,” said Jeffrey Cleveland, chief economist at investment manager Payden & Rygel. He pointed out that average hourly earnings, which finished the year below 4% growth, are returning to pre-Covid norms, alleviating fears of wage-driven inflation.
Like Green, Cleaveldn also noted: “We view this as a great opportunity for carry and coupon clipping for fixed income investors, while the solid jobs data means risk assets will perform well over the course of the year (we’re not on the cusp of a downturn).”
ECB rate cut sparks consensus on further easing
Market reactions to the strong labour report were mixed. Yields on US 10-year and two-year Treasuries rose by nearly 10 basis points, while S&P 500 futures dipped 1% in pre-market trading. Richard Carter, head of fixed interest research at Quilter Cheviot, the fund management business of Quilter Plc, said: “In disappointing news for Chancellor Rachel Reeves, the bond market sell-off could continue following strong data out of the US today.” The Federal Reserve’s December rate cut could be the last we see for a while, said Carter. “Markets now anticipate a hold on rates until at least May, as Trump’s upcoming inauguration and potentially inflationary policies add another layer of uncertainty.”
Daniele Antonucci, chief investment officer at Quintet Private Bank, (parent of Brown Shipley), highlighted the dual implications of the payroll report. “While strong employment supports near-term economic and earnings growth, it also means there’s no immediate reason for the Fed to lower rates further.” X highlighted that the resilience of US economic and earnings growth in the near term is a positive sign, which bodes well for equities overall. However, they noted that this resilience also suggests no justification for further interest rate cuts.
Antonucci also pointed to uncertainty surrounding the timing of any Federal Reserve rate adjustments and cautioned that the US bond market could remain under pressure, particularly with potential fiscal stimulus adding to the challenges. “We’re currently underweight US Treasuries on fiscal concerns, preferring short-dated bonds in Europe where the European Central Bank has stronger reasons to cut, given economic weakness,” added Antonucci.
The cooling in core personal consumption expenditures to 0.1% month-on-month in November suggests progress toward price stability. Cleveland said: “The Fed isn’t trying to derail the labour market but to achieve a balance between full employment and stable prices.”
Despite the labour market’s strength, challenges loom for emerging markets, where the dollar’s appreciation, driven by higher yields, increases the cost of dollar-denominated debt, according to Green. Pointing to opportunities for savvy investors to capitalise on currency fluctuations, Green added: “In this environment, cash is not king – strategic investment is. Diversification, careful sector selection, and a focus on quality assets will be crucial for tackling the months ahead.”
As the Federal Reserve’s next policy meeting on January 29 approaches, investors remain cautious about the road ahead.
