Revelio Labs had recently predicted a December NFP increase of 71,000. This figure would have a monumental effect on the Federal Reserve’s near-term outlook. Released at 1:30 PM London time and 8:30 AM New York time, the report indicates a continuing trend in labor market adjustments. The education and health services sector played a major role, adding 31,400 to the overall total.
December NFP numbers reflect the same movement we observed in November. More than 90 percent of that job growth was in the non-cyclical health care and social assistance sector. This worrisome pattern seems to foretell a broader deceleration of the labor market. History is a good teacher and previous bad behaviors have usually presaged the same, in spades.
First, private sector payrolls are seen rising 75,000, which would be an acceleration from the 69,000 print in November. Full-time jobs have started to climb! Despite these headlines, the data shows us that the underlying demand in the labor market is weaker than it appears. Analysts note that the NFP report is a critical indicator of labor market health and plays a significant role in shaping future Federal Reserve decisions.
“Today’s December non-farm payrolls report is set to shape the near-term Fed outlook.” – BBH FX analysts
A string of recent Goldilocks-type economic data from the U.S. has calmed fears of imminent rate hikes. This stability is propping up the strength of the U.S. dollar (USD). An improving labor market may drive the USD back near the top of the range locked in place since mid-June 2023. If the demand for labor were to worsen, the advancements made lately in USD would lose their luster.
Markets have started to dial back expectations for future reductions in the Fed funds rate as a result of this stabilization. Despite these positive indicators, there is continued wariness about future demand for labor. As analysts have suggested, any signs of deteriorating labor demand would trigger a reassessment of the latest USD strength.
“If our view of worsening US labor demand pans out, USD will likely unwind recent gains as the rate differentials narrative reassert itself.” – BBH FX analysts
Analysts warn against unqualified reading of current employment numbers, which really aren’t all that great right now anyway. With workers holding strong cards, now is the time to press this advantage. These trends can be misleading indicators of the job market’s health. Stakeholders should be on the lookout for a clearer signal in the forthcoming data releases and economic indicators.
The online betting markets currently assign less than a 30% likelihood that a court will uphold tariffs related to NFP. This uncertainty highlights larger issues about the direction of economic policy and its impact on employment and wage increases.