Jill Schlesinger
Good news for the economy is sometimes not so good for investors.
It's early in the year, so let's start with the positive: Job creation was much better than expected in December. There were 256,000 new positions added, and with minor revisions to the previous two months, the total number for 2024 was a solid 2.23 million.
That result means that the labor market has finally returned to its pre-pandemic average (2015 through 2019) of 2.285 million jobs per year.
Now for the not-so-good news: The December result makes it more likely that the Federal Reserve will stand pat at its next policy meeting later in the month.
At the December meeting, the central bank projected that it would make two quarter-point reductions during the 2025 calendar year, but those projections are always subject to data.
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Given the strength of recent economic reports, including the December jobs report, it looks like the Fed will be comfortable keeping interest rates higher for longer, until the inflation rate returns to its target of 2%.
Investors have not been happy about the idea of interest rates remaining elevated, which has caused them to sell stocks and bonds, extending a sell-off that started a few weeks ago.
Of course, bad days, weeks and months are a little easier to withstand after two stunning years of stock-market performance. (The S&P 500 index gained 53% from 2023 to 2024, its best two years since 1997 and 1998).
That said, there will surely be a significant pullback -- there always is, even in years when markets rise. The trick is to avoid getting spooked and to steadfastly stick to your game plan.
But let's stick to the good news for a moment. The unemployment rate edged lower to 4.1% in December for the right reason -- more people were able to get jobs (478,000) despite a 243,000 increase in the number of people looking for work.
Also, the number of people who have been unemployed for more than six months edged lower in December to 1.55 million, snapping a four-month rise.
Finally, while annual wages grew more slowly than in the previous month, a 3.9% increase is still well ahead of the current 2.7% inflation rate (as of November). That differential should help those who seek to rebuild their savings and to pay down debt.
With 2024 behind us, what does the job market look like for 2025?
Overall, consumers and businesses are on track to spend enough to keep the economic expansion going. Most analysts have penciled in gross domestic product growth of about 2.5%, which should allow job growth to be positive, though maybe not quite as strong as 2024.
Like the real estate mantra of "location, location, location," much of the labor market depends on the job you seek and the sector in which you hope to find that position. If you are working in a consolidating industry, like media, then finding a job in the year ahead will be tough. If you are an AI engineer, things will be better.
By far, the biggest asterisk to the employment landscape in 2025 is the impact of policies enacted by the incoming Trump administration.
While the extension of tax cuts and looser regulation might act as catalysts, tariffs could reignite inflation, and immigration curbs might reduce the labor supply.
Together, all of these actions will certainly change the outlook for overall growth and jobs. Paul Ashworth of Capital Economics notes that "with only 10 days until the inauguration, there is still massive uncertainty about the details of the policies that the incoming Trump administration will adopt."
Jill Schlesinger, CFP, is a CBS News business analyst. She welcomes comments and questions at [email protected].
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