a Small Drop in the Unemployment Rate, and Softer Wage Growth

• Job growth was well above expectations in December, with an increase of 256,000.
• The unemployment rate fell slightly to 4.1% in December, with increases in both employment in the household survey and the labor force.

• Wage growth slowed in December from recent months.
• The labor market was in very good shape at the end of 2024, and should remain solid this year.
• PNC expects two fed funds rate cuts in the first half of this year.

The U.S. economy added 256,000 jobs in December according to a survey of employers from the Bureau of Labor Statistics, far above the consensus expectation of 150,000. This was the strongest month for job growth since March, although it was just above the 255,000 jobs added in September. Job growth in November was revised lower to 212,000 from 227,000, while October job growth was revised higher to 43,000 from 36,000. Job growth in October was weak because of Hurricanes Helene and Milton, and then has rebounded over the past two months. Over the past three months the US economy has added an average of 170,000 close to potential given underlying growth in the number of available workers. The private sector added 223,000 jobs in December, with government employment up by 33,000.

The unemployment rate fell to 4.1% in December from 4.2% in November. This release included revisions to the unemployment rate going back to January 2024, but they do not change the story: the unemployment rate is up from the beginning of last year (3.7% in January 2024), but has been between 4.0% and 4.3% since May. This is right around the Federal Reserve’s estimate of the long-run employment rate of 4.2% that is consistent with their inflation target.

Employment as measured in a survey of households (different from the survey of employers) jumped by 478,000 in December, the largest increase since March 2024. The labor force-the number of people working or looking for work-rose by a good 243,000 in December. The labor force participation rate, which is the share of adults working or looking for work, was unchanged from October and November at 62.5% in December. The labor force participation rate has been between 62.5% and 62.8% since early 2023; the rate was above 63% before the pandemic, and the post-pandemic job market is structurally tighter than the pre-pandemic one.

Average hourly earnings rose 0.3% (0.28% before rounding) in December from November, slightly below the pace in August to November. On a year-over-year basis average hourly earnings were up 3.9% in December. After hitting almost 6% in mid-2022, yearly wage growth has slowed to around 4%. This is still somewhat higher than the pre-pandemic pace of somewhat above 3%.
The average workweek was unchanged at 34.3 hours. With more jobs, higher wages, and an unchanged workweek, aggregate earnings rose a good 0.4% in December.
Goods-producing industries lost 8,000 jobs in December, with a drop in manufacturing more than offsetting an increase in construction. Private service-providing industries added 231,000 jobs over the month, with gains in most industries; healthcare led the way.

The December jobs report was better than expected, with very strong job growth in both the employers and household surveys and a drop in the unemployment rate. Slower wage growth was good news from an inflation perspective, even as labor market earnings continue to rise faster than prices. The job market should remain sturdy in 2025, with continued albeit softer job gains and an unemployment rate close to 4%. One downside risk for job growth is the potential for immigration restrictions from the incoming Trump administration, which would constrain the number of available workers.

With more jobs and higher wages consumer spending will continue to increase in the near term, supporting overall economic growth. After cutting the federal funds rate by 100 basis points between September and December, the Federal Open Market Committee has indicated that it does not expect to cut the rate at every meeting in the near term. This jobs report is consistent with that view: a strong labor market makes further rate cuts less necessary, and could spark further inflationary pressures. PNC expects the FOMC to cut the fed funds rate by 25 basis points at its meetings in March and June (with no cuts at its meetings in January and April), and then hold the rate steady in a range between 3.75% and 4.00% in the second half of this year and into 2026.

PNC Bank, National Association, is a member of The PNC Financial Services Group, Inc. (NYSE: PNC). PNC is one of the largest diversified financial services institutions in the United States, organized around its customers and communities for strong relationships and local delivery of retail and business banking including a full range of lending products; specialized services for corporations and government entities, including corporate banking, real estate finance and asset-based lending; wealth management and asset management.