The positive surprise of the labor market: chart of the week

This is the conclusion of today’s Morning Brief, which you can read Sign in Delivered to your inbox every morning, along with:

In December, Fed Chairman Jay Powell said the labor market didn’t need a further weakening to put inflation back on a downward path.

At the time, all signs pointed to a cooling but still healthy labor market, which Powell believed would curb inflation over time.

The December jobs report headline that appeared 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 – suggests that hiring activity appears relatively unchallenged as employers have implemented plans outlined in November.

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

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

As Powell and his colleagues at the Fed like to remind us, data releases must be viewed “in their entirety” with the full range of measures of inflation, hiring, GDP and economic activity in order to produce the most accurate understanding of the economy.

Where does this lead us? This week’s data showed that layoffs and hiring slowed in November, while growth in private payrolls also slowed. Manufacturing data also suggests that inflationary pressures are far from resolved and are playing a big role alongside the blockbuster jobs report.

Beyond the headlines in Friday’s data, ING’s James Knightley pointed out in a note to clients that the new jobs added “tend to be lower paid, less secure and more likely to be part-time jobs than ‘typical jobs’.” cited health care, social assistance and government agencies as leading to December’s gains.

As the market delved into the report, yields and stocks slightly pared back their initial moves.

However, as another month has passed and there are fewer and fewer clear answers about the direction of the economy, investors will once again have to wait for more data. The entirety of this will never be complete.

Ethan Wolff-Mann is a senior editor at Yahoo Finance and manages newsletters. Follow him on X @ewolffmann.

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