US jobs report to present first major test of stock market for 2025

Investing.com — US employers likely eased back on hiring in December, closing out a year of steady but slowing job growth that economists predict will extend into 2025.

Economists surveyed by Bloomberg estimate payrolls rose by 160,000 last month, reflecting a labor market that has moved past disruptions from hurricanes and strikes in previous months.

This would bring the average monthly job gain for 2024 to around 180,000 – a slowdown from the past three years but still indicative of underlying labor market strength. Such a print would point to a stable but not overheated US economy and underpin expectations for stock market gains in 2025. 

The employment report, set for release on Friday, isn’t expected to shift the Federal Reserve’s stance on interest rates. Policymakers are likely to maintain a gradual approach to rate cuts, given the economy’s resilience and the ongoing but slow retreat of inflation.

Moreover, investors will review minutes from the Fed’s December meeting on Wednesday, seeking insights into how divided officials were over the recent quarter-point rate reduction.

Projections also suggest the unemployment rate will remain at 4.2%, while wage growth is anticipated to cool slightly from the previous month. This points to a labor market that, while solid, is no longer fueling inflationary pressures.

Strategists at Citigroup (NYSE:) estimate that December payrolls increased by 120,000, notably lower than Bloomberg estimates, and the unemployment rate at 4.4%.

“Over the next few months, we expect attention to shift away from inflation and back toward the still softening labor market,” strategists led by Andrew Hollenhorst said in a note. “Elevated inflation concerns should quickly dissipate with annualized core PCE at different time horizons projected to run sub-2.5%.”

With Treasury real yields and the dollar remaining elevated – even after 100 basis points of Fed rate cuts – Citi’s team believes the economy “should continue to cool until the Fed resumes cutting policy rates.”

In contrast, Nomura strategists expect that job gains remained strong at 180,000 in December.

“Survey data suggest the labor market is improving, and we expect additional strength in the retail and construction sectors,” strategists led by Jeremy Schwartz noted.

They believe the unemployment rate likely edged lower but remained at 4.2% in rounded terms.

Meanwhile, Morgan Stanley (NYSE:) expects the labor market stayed solid but showed signs of slowing in December, projecting a payroll increase of 150,000.