Job growth in December was much stronger than expected, which could lead to less incentive for the Federal Reserve to cut interest rates this year.

Nonfarm payrolls surged by 256,000 this month, up from 212,000 in November and above the Dow Jones consensus forecast of 155,000. Bureau of Labor Statistics reported on Friday.

The unemployment rate edged down to 4.1%, one-tenth of a point lower than expected. Another measure that includes discouraged workers and those working part-time for financial reasons dropped to 7.5%, down 0.2 percentage points and the lowest level since June 2024.

stock market futures U.S. Treasury yields tumbled following the report and surged as traders viewed the Fed as less likely to cut interest rates this year.

The report caps a year in which employment has increased each month, albeit inconsistently, sometimes raising questions about whether a recession is imminent. However, the past two months have shown that the labor market remains strong as the Federal Reserve considers its next steps in monetary policy.

One area that Fed officials have emphasized not becoming a source of inflation is the labor market, where wage growth has been slightly weaker than expected.

Average hourly earnings rose 0.3% this month, in line with expectations, but the 12-month gain of 3.9% was slightly less than expected, suggesting wage inflation is at least no longer a factor. The average working week was once again stable at 34.3 hours.

Job growth came from familiar sources such as health care (+46,000 jobs), leisure and hospitality (43,000 jobs), and government (33,000 jobs).

Retail also saw big gains, rising 43,000 points after falling 29,000 points during the holiday shopping season in November. The industry’s full-year wage growth was 2.2 million, down nearly a third from 3 million in 2023.

Corrections in previous months have been less dramatic than recent trends. The number in October rose by 7,000 to 43,000, while the number in November was 15,000 lower than the previous estimate.

At the December meeting, Fed officials viewed the labor market as generally healthy, albeit slowing. The Fed voted at the meeting to cut its key borrowing rate by a quarter of a percentage point, while signaling a slower pace of future rate cuts.

Markets expect the Fed to remain unchanged at its meeting later this month, with futures pricing after the jobs report shifting to expectations for just one rate cut this year. Central bank officials have recently expressed concern about the pace of inflation, which has been running above the Fed’s 2% target, mainly because of high housing costs and some commodity prices.

The household report, which the U.S. Bureau of Labor Statistics uses to calculate the unemployment rate, showed a stronger employment outlook. That number rose by 478,000 people this month, bringing the labor force to 243,000, with the proportion of working-age people either employed or looking for work holding steady at 62.5%.

Full-time employment increased by 87,000, and part-time workers surged by 247,000. The number of unemployed people decreased by 235,000.

The duration of unemployment rose slightly to 23.7 weeks, the highest level since April 2022. However, the number of people unemployed for 27 weeks or more fell to 1.55 million, a decrease of 103,000.

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