The labor market’s upside surprise

This is Yahoo Finance's Chart of the Week, a LinkedIn newsletter and a companion to the Morning Brief, our daily flagship newsletter. Sign up for free to get what we're watching, what we're reading, and what earnings and economic news are on tap for the day in your inbox.

In December, Fed Chair Jay Powell said that the labor market didn’t need any more softening to get inflation to resume its path downward.

At the time, all signs pointed to a cooling, but still healthy, labor market that Powell judged would bring inflation to heel in time.

The December jobs report’s headline number out Friday morning turned that narrative on its head.

As our Chart of the Week shows, the creation of 256,000 new jobs in the final month of 2024 — 91,000 more than expected — indicates that hiring appears relatively unencumbered as employers followed through on their plans outlined in November.

Markets reacted immediately. The 10-year yield shot up to nearly 4.8% and the S&P 500 dropped sharply 1.4% Friday morning as investors priced in a longer pause from the Fed on further rate cuts.

Now, any data release can elicit a reaction from the market. But whether it describes a useful, general reality or a less actionable, specific one is the $49 trillion question.

As Powell and his colleagues at the Fed like to remind us, data releases need to be taken in “totality” with the full palette of readings on inflation, hiring, GDP, and economic activity to evoke the closest thing to an accurate understanding of the economy.

So where does that leave us? This week’s data showed us quits and hires slowed in November, while private payroll growth also slowed. Manufacturing data also suggested inflation pressures are far from being solved, looming large alongside the blockbuster jobs report.

Beyond the headline number of Friday’s data, ING's James Knightley pointed out in a note to clients that the jobs added "are typically lower paid, less secure and more part time in nature than the 'typical job.'” In its release, the BLS called out healthcare, social assistance, and government jobs leading December’s gains.

As the market dug into the report, yields and stocks backtracked their initial moves slightly.

But with yet another month gone by and fewer clear answers about the economy’s direction, investors are once again left to wait for more data. The totality of which will never be finished.

— Ethan Wolff-Mann, Senior Editor at Yahoo Finance