Guotai Haitong: US unemployment rate fell in December, threshold for interest rate cut in January still high.

Guotai Haitong released a research report stating that the low recruitment and low layoffs in the US job market in December are still continuing. On the one hand, the unemployment rate unexpectedly dropped to 4.4%, interrupting the trend of continuous increase. However, on the other hand, new job growth is still slowing down, and there may be further downward revisions in the coming years. With three consecutive rate cuts and no further increase in the unemployment rate, the Federal Reserve still has the time and space to choose to pause rate cuts in January. The key points are as follows: Decline in unemployment rate: Market concerns temporarily eased. In the short term, concerns about the continued deterioration of employment in the United States may have temporarily eased. On one hand, the US unemployment rate unexpectedly dropped to 4.4% in December, and the November unemployment rate was also revised down to 4.5%, showing a pause in the deterioration of the unemployment rate. The U6 unemployment rate also significantly dropped, easing the pressure on the marginally employed. On the other hand, although the average weekly work hours in December have dropped slightly, they are still within a stable range, average hourly wage growth has slightly increased, and initial unemployment claims have remained stable since December. Employment market: "Frozen" state still continues. Although the alarm of climbing unemployment rate has temporarily been lifted, new job creation is still in a weak state. Non-farm payrolls in the US only added 50,000 new jobs in December, below market expectations (65,000 jobs). In addition, non-farm payroll figures for October and November were revised down by a total of 76,000 jobs. In terms of industry structure, new job creation in the goods-producing sector is weak, while new job creation in the service-producing sector is still mainly concentrated in education, healthcare, and leisure/hospitality. Private sector job growth over the past three months continues to show a slowing trend, and future annual revisions may lead to further downward revisions in new job numbers. The Federal Reserve still has room to pause rate cuts in January. With the unemployment rate not rising further in December and many employment indicators showing low risk of a slowdown in the US job market, the Federal Reserve may still have room to pause rate cuts after already implementing three consecutive cuts. According to CME data, after the non-farm payroll data was released, the market's probability of a rate cut in January is only 5%. The market still expects the Federal Reserve to cut rates twice in 2026, but the timing has been pushed back to June and September. Events that could intensify expectations of further rate cuts should focus mainly on the appointment and statements of the new Federal Reserve chairman. Risk warning: Trump's political pressure escalation further undermines the independence of the Federal Reserve.