Friday’s strong jobs report underlined the point: there is little reason for further rate cuts in the US. Other labour market indicators are consistent with the December payrolls report. NFIB hiring plans, for example, bottomed in Q1 of last year, and rose sharply through Q4, corroborating the pick-up in the underlying pace of hiring. Layoffs have remained consistently low, but the recent slide in initial claims adds to the evidence that the labour market has strengthened since the election.
Alongside the drop in the U3 rate, the U6 rate also dipped from 7.7% to 7.5% in December, a 6-month low. Broader measures of labour market slack are diminishing. The labour force participation rate barely rose through 2024 (up just 3 basis points to 62.51%). If the rise in the civilian labour force also plateaus (it was up just 0.7% y/y in December) then the labour market could tighten much faster than many anticipate in 2025.
Friday’s strong payrolls report sent government bond yields even higher. Thirty-year real yields have hit multi-year highs, putting some pressure on the stock market. The jump in the non-manufacturing ISM prices index and the rise in crude oil have added to bond market nerves. The UK government, in particular, will be hoping for softer CPI prints on both sides of the Atlantic on Wednesday.
