In December, the U.S. ADP employment increased by 122,000, and the resilience of the labor market may prompt the Federal Reserve to gradually cut interest rates

According to the Zhitong Finance APP, the growth of private sector employment in the United States slowed down in December, but the labor market still shows enough resilience, which may prompt the Federal Reserve to gradually cut interest rates in 2025. According to the ADP National Employment Report released on Wednesday, private sector jobs increased by 122,000 last month, below the market expectation of 140,000, marking the lowest level since August 2024. In comparison, jobs increased by 146,000 in November. In terms of wages, the year-on-year growth rate fell to 4.6%, the lowest level since July 2021.

ADP Chief Economist Nela Richardson pointed out that the growth rate of the labor market slowed down in the last month of 2024, with both hiring and wage growth decelerating. The ADP report is typically released two days ahead of the non-farm payroll data published by the U.S. Bureau of Labor Statistics. Economists surveyed by Dow Jones expect non-farm payrolls to increase by 155,000 in December, down from 227,000 in November.

Federal Reserve policymakers are closely monitoring employment data to formulate future monetary policy. Although most officials believe the labor market remains robust, they still hope to maintain accommodative interest rates to avoid threatening job creation. Additionally, they express greater confidence that inflation rates are stabilizing, although inflation remains above the Fed's 2% target. ADP data may further demonstrate that wage growth will not exert additional pressure on inflation.

From an industry perspective, employment growth varies. The largest increases were seen in education and healthcare services, construction, and leisure and hospitality. Specifically, the education and healthcare services sector added 57,000 jobs, construction added 27,000 jobs, leisure and hospitality added 22,000 jobs, and financial activities added 12,000 jobs.

On the other hand, manufacturing lost 11,000 jobs, natural resources and mining lost 6,000 jobs, and professional and business services lost 5,000 jobs.

Almost all job growth came from large companies with more than 500 employees, which collectively added 97,000 jobs. The data released on Wednesday indicates that the trend of a gradually softening U.S. labor market in 2024 may continue into the end of the year. Federal Reserve officials need to find a balance between this trend and new inflation concerns to determine the extent of future interest rate cuts in 2025 and beyond.

Additionally, a report jointly released by ADP and the Stanford Digital Economy Lab shows that wage growth further cooled. Wages for workers who changed jobs rose by 7.1%, while wages for those who remained in their positions rose by 4.6%, the lowest level since mid-2021. The ADP survey results are based on payroll data from over 25 million U.S. private sector employees.

Another report released on Tuesday showed that the number of job vacancies in the U.S. unexpectedly increased in November, while hiring weakened, indicating that the overall labor market is cooling at a relatively slow pace. Non-farm payrolls are expected to increase by 154,000 in December, down from the 227,000 increase in November The unemployment rate is expected to remain at 4.2%.

In recent months, labor market data has been unstable due to the impacts of strikes and hurricanes. Nevertheless, since investors have almost not factored in the possibility of the Federal Reserve lowering interest rates twice this year, the relevant data may align with a gradually slowing but still robust labor market