The US economy added more jobs than expected in December, providing a fresh dose of optimism that the labor market will remain strong for the near term. There’s lots of uncertainty ahead as Trump 2.0 is set to get underway, but it’s fair to say that the incoming administration inherits a labor market that’s humming.
Nonfarm payrolls rose 256,000 in December, the strongest monthly gain since March. But monthly data is noisy so it’s helpful to look at one-year changes to emphasize the signal. On that score, the data still looks solid. Payrolls rose 1.4% vs. the year-ago level. That’s roughly the pace that prevailed before the pandemic hit. The question is whether the current growth rate will hold steady. Recent history leaves room for debate.
The 1-year change has been easing in most months in recent history, slipping yet again to +1.42% in December. The good news: the decline remains gradual and for the moment the pace remains healthy.
For another perspective on the trend, consider the rolling 1-year change in total nonfarm payrolls adjusted by the unemployment rate. Here, too, the numbers suggest the post-pandemic period has normalized and the current reading is more or less in line with the pre-pandemic data. This ratio, however, continues to ease, albeit slightly, which is a reminder that while job growth is healthy, the downside bias suggests a late-cycle trend.
A somewhat darker profile is shown by the year-over-year trend in private payrolls less total nonfarm payrolls. This index is usually positive, which is to say that the private sector’s hiring tends to dominate. Indeed, the private sector accounts for about 85% of total payrolls. Hiring and firing by companies, in short, is the critical factor from a business-cycle perspective vs. the minor role for government payrolls.
The fact that this metric has been negative in recent history suggests a relative weakness in private-sector hiring – a condition that’s usually associated with rising recession risk.
Yet US recession remains low at the moment. What accounts for the weak reading in the chart above? The short answer: pandemic-related disruption is probably a factor. But this last chart is also telling us that the labor market may be more vulnerable than the latest monthly payroll data suggests.
It’s too soon to know if 2025 is a turning point for the post-pandemic resilience in payrolls. If there’s an early warning, it’ll show up via faster, deeper deterioration in the 1-year comparisons.