The number of jobs in the United States increased by 122,000 in December, and the resilience of the labor market may prompt the Federal Reserve to gradually reduce interest rates.

In December, private sector job growth in the United States slowed down, but the labor market still showed enough resilience, which could prompt the Federal Reserve to gradually cut interest rates in 2025. According to the ADP National Employment Report released on Wednesday, private sector employment increased by 122,000 last month, below market expectations of 140,000, marking the lowest level since August 2024. In comparison, job growth in November was 146,000. 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 in the final month of 2024, the growth rate of the labor market slowed down, with both hiring and wage growth decelerating. The ADP report is usually released two days ahead of the nonfarm payroll data announced by the U.S. Bureau of Labor Statistics. Economists surveyed by Dow Jones expect nonfarm 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. While most officials believe the labor market remains robust, they still want to maintain loose rates to avoid threatening job creation. Additionally, they have shown more confidence in inflation stabilizing, although it remains above the Fed's 2% target. ADP data may further prove that wage growth will not exert additional pressure on inflation. In terms of industries, employment growth varies. The largest increases were seen in education and health services, construction, and leisure and hospitality. Specifically, the education and health services industry added 57,000 jobs, the construction industry added 27,000 jobs, the leisure and hospitality industry added 22,000 jobs, and the financial activities industry 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 over 500 employees, adding a total of 97,000 jobs. Data released on Wednesday suggests that the softening trend in the U.S. labor market in 2024 may continue to the end of the year. Fed officials need to find a balance between this trend and new inflation concerns to decide on the extent of further rate cuts in 2025 and beyond. Furthermore, a report jointly released by ADP and the Stanford Digital Economy Lab shows that wage growth has further cooled. Workers changing jobs saw wages rise by 7.1%, while those staying in their current positions saw wages rise by 4.6%, the lowest level since mid-2021. ADP's survey results are based on payroll data from over 25 million U.S. private sector employees. Another report released on Tuesday showed that job vacancies in the United States unexpectedly increased in November, while recruitment activities weakened, indicating that the overall labor market is cooling down at a fairly slow pace. Nonfarm payrolls are expected to increase by 154,000 in December, lower than 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 strikes and the impact of hurricanes. However, as investors have not factored in the possibility of two rate cuts by the Fed this year, the related data may align with a labor market that is gradually slowing down but still resilient.