January US Jobs Report Preview

• Consensus estimates project nonfarm payroll employment to have increased between 150K and 160K in December. Unemployment is expected to remain at 4.2%.
• Though overall unemployment remains contained, the brunt of the increase in unemployment has been borne by recent college graduates.
• The strength of labor market expansion still depends primarily on the performance of Healthcare and Social Assistance, Government, and Leisure and Hospitality. ?That leaves us with a fragile expansion that may be easily undermined by ongoing (gradual) slowdown or unexpected events.

Nonfarm Payroll Employment

Consensus estimates project lower but solid nonfarm payroll gains of 160K for December 2024. In 2024, employment growth dropped steeply starting in May and became more volatile throughout the second half of the year. Despite this volatility, the running average of employment growth remains in solid territory between +100K and 200K.

Government, Healthcare and Social Assistance, and Leisure and Hospitality account for 75% of nonfarm payroll gains since January 2023. For employment growth to remain solid, employment outside of Government, Healthcare and Social Assistance, and Leisure and Hospitality must increase or at least only see minimum decline. Leisure and Hospitality has seen increased volatility in job growth and is no longer assured to offset any losses outside of the three key sectors mentioned. In fact, the latest Job Openings and Labor Turnover Survey indicates a decline in job openings in Leisure and Hospitality entering December.

Unemployment and Labor Force Participation

The unemployment rate is expected to remain at its current rate of 4.2%. Continuing claims data has trended flat in recent weeks, while initial claims has continued to trend downward. In addition, JOLTS continues to indicate low and steady layoffs through November. Taken together, these data signal steady unemployment, barring sizable entry or reentry into the labor market.

While overall unemployment has remained contained, the upward trend in unemployment in 2024 appears to have disproportionately burdened recent college graduates (aged 22-27 with a bachelor’s degree or more). This group has seen a sharper rise in unemployment compared to others, and its unemployment rate exceeds the overall unemployment – which has rarely occurred over the past two decades (but did so prior to the pandemic).

The BLS’ household survey currently shows no employment gains in 2024, averaging -4K from January to November – well below its 2010-2019 average of +174K. Household employment gains have not been this tepid in well over a decade. The lack of employment gains in the household survey has been driven by a commensurate slowdown in both full-time and part-time work.

Labor force participation for workers aged 25 to 54 remains strong in historical terms, though it has trended downward since peaking in July. The employment-to-population ratio for 25-to-54 year olds also peaked in July but remains strong in historical terms. Despite this stall in labor supply growth, wage growth moderation continues even as nominal wage growth is longer be considered a key driver of price inflation.

Data Roundup

Yesterday’s Job Openings and Labor Turnover Survey (JOLTS), ADP’s private payroll employment data, and LinkedIn data indicate that the labor market remains in a hiring lull which is just strong enough to support low unemployment and ongoing employment growth. However, this dynamic remains fragile as we saw with volatile payroll prints throughout the second half of the year. Additional slowdown or shocks may easily push the labor market into a concerning state.

• This week’s JOLTS report saw notable job openings move back up to 8M with notable declines in Information, Accommodation and Food Services, and Durable Goods Manufacturing. The hiring rate ticked down to its slowest pace in 2024 and slowest pace since 2013, and the quit rate slowed back below its 20-year average as a result of slower hiring.?The layoff rate remained unchanged despite slow labor market dynamics (i.e., pace of hires and quits). Overall, JOLTS portrays a labor market governed by a hiring slowdown that moderated at various times in 2024.

• This week’s ADP employment report also indicates moderation in employment growth with both Manufacturing and Professional and Business Services experiencing payroll losses in December 2024. As is the case in the Current Establishment Survey, Healthcare created more jobs than any other sector in ADP’s data (in the latter half of 2024). ADP’s data also suggest nominal wages continue to moderate.
• In LinkedIn data, hiring in the US began to stabilize in the first half of 2024 before slowing meaningfully in the summer as nonfarm payroll gains dropped off as well. Throughout this period, hiring in Technology, Information, and Media showed signs of stabilizing despite ongoing slowdown in overall hiring.
• While a downside outcome for nonfarm payrolls on Friday will be considered a surprise, it remains within the realm of possibility. The Federal Reserve lowered the US target policy rate by 25 basis points in November and December, however, monetary policy remains restrictive and will continue to weigh on the labor market.