The U.S. December non-farm payrolls are too "hot"! Is the Federal Reserve's pause on interest rate cuts a done deal?

According to the Zhitong Finance APP, a report released by the U.S. Bureau of Labor Statistics on Friday showed that non-farm payrolls increased by 256,000, significantly exceeding the expected 165,000, with data from the previous two months slightly revised down. The unemployment rate fell to 4.1%, and average hourly earnings rose by 0.3% compared to November.

The new jobs added in December marked the highest since March, and the unexpected drop in the unemployment rate capped off a surprisingly strong year, providing justification for the Federal Reserve to pause interest rate cuts.

Following the announcement, U.S. Treasury yields and the dollar surged as traders reduced bets on interest rate cuts, while S&P 500 futures fell.

Friday's report confirmed that despite high borrowing costs, persistent inflation, and significant political uncertainty, the labor market remained robust last year. Although demand for workers is expected to slow in 2024 and the unemployment rate is projected to rise, the economy still added 2.2 million jobs—lower than the 3 million added in 2023 but higher than the 2 million added in 2019.

After a rebound in inflation in recent months, the Federal Reserve's focus has shifted back to inflation, with several officials indicating that after reducing borrowing costs by a full percentage point in 2024, they may maintain stable rates for some time. The U.S. Bureau of Labor Statistics will release monthly consumer price data on January 15.

The increase in employment in December was primarily in healthcare and social assistance, retail trade, and leisure and hospitality. Government employment also saw an increase. Manufacturing and wholesale trade experienced declines.

The labor force participation rate (the proportion of the population that is employed or actively seeking work) remained unchanged at 62.5%. The participation rate for workers aged 25-54 (also known as prime-age workers) also remained stable.

Data also showed a decrease in the number of permanently unemployed individuals, an increase in voluntary resignations, and a decline in the median duration of unemployment.

Despite weekly unemployment insurance claims indicating that layoffs remain subdued in 2024, several large companies, including BlackRock and Tyson Foods, have announced layoff plans for this year. A report from executive outplacement firm Challenger, Gray & Christmas indicated that the number of hiring announcements by companies in 2024 is the lowest in nearly a decade.

Additionally, it remains to be seen how the economic agenda of incoming President Trump—particularly plans for mass deportations of illegal immigrants and imposing punitive tariffs on imported goods—will affect the labor market