• Nonfarm payrolls surged by 256,000 for the month, up from 212,000 in November and above the 155,000 forecast.
• The unemployment rate edged down to 4.1%, one-tenth of a point below expectations. A broader jobless measure moved down to 7.5%, a decrease of 0.2 percentage point and the lowest since June 2024.
• Average hourly earnings increased 0.3% on the month, which was in line with forecasts, but the 12-month gain of 3.9% was slightly below the outlook.
• Stock market futures plunged after the report while Treasury yields soared as traders price in a lower probability of Fed rate cuts this year.

Job growth was much stronger than expected in December, likely providing the Federal Reserve less incentive to cut interest rates this year.

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

The unemployment rate edged down to 4.1%, one-tenth of a point below expectations. An alternative measure that includes discouraged workers and those holding part-time positions for economic reasons moved down to 7.5%, a decrease of 0.2 percentage point and the lowest since June 2024.

Stock market futures plunged after the report while Treasury yields soared as traders price in a lower probability of Fed rate cuts this year.

"This is a hot report," said Dan North, senior economist for North America at Allianz Trade. "You have to think that [Fed Chair] Jerome Powell is breathing a sigh of relief in the sense that his job just got a little bit easier. Inflation hasn't been moving anywhere for months, so there's no incentive to cut rates. Now you get this [jobs report] so you don't need to cut rates to stimulate the economy."

The report brings to a close a year in which employment grew each month, though inconsistently and at times raising questions over whether a recession loomed. However, the final two months showed a labor market still operating at strength as the Fed contemplates its next moves on monetary policy.

One area that Fed officials have stressed to not be a source of inflation is the labor market, and wages grew slightly less than expected.

Average hourly earnings increased 0.3% on the month, which was in line with forecasts, but the 12-month gain of 3.9% was slightly below the outlook and indicative that wage inflation at least is becoming less of a factor. The average workweek again held steady at 34.3 hours.

Job growth came from the familiar sources of health care (up 46,000), leisure and hospitality (43,000), and government (33,000).

Retail also saw a sizeable gain, up 43,000 after losing 29,000 in November heading into the holiday shopping season. The sector saw payroll growth of 2.2 million for the full year, down sharply from the 3 million gain in 2023.

Revisions for prior months were less substantial than has been the recent trend. The October count saw an upward change of 7,000 to 43,000, while the November number was cut by 15,000 from the prior estimate.

At their December meeting, Fed officials deemed the labor market mostly healthy though slowing. The Fed voted at the meeting to lower its key borrowing rate by a quarter percentage point while indicating a slower pace of reductions ahead.

Markets expect the Fed to hold pat at the meeting later this month, with futures pricing after the jobs report swinging to the expectation of just one cut this year. The market-implied probability of a single cut increased to 68.5% after the jobs report, according to the CME Group's FedWatch gauge.

"The surprisingly strong jobs report certainly isn't going to make the Fed less hawkish," said Ellen Zentner, chief economic strategist at Morgan Stanley Wealth Management. "All eyes will now turn to next week's inflation data, but even a downside surprise in those numbers probably won't be enough to get the Fed to cut rates any time soon."

Central bankers have expressed concern lately with the pace of inflation, which has held above the Fed's 2% target largely because of stubbornly high housing costs as well as some goods prices.

The household report, which the BLS uses to calculate the unemployment rate, presented an even stronger jobs picture. That count increased by 478,000 on the month , as the labor force grew by 243,000 and the share of working age people either holding jobs or looking for employment held steady at 62.5%.

Full-time employment increased by 87,000, while part-time workers surged by 247,000. The level of unemployed workers fell by 235,000.

The duration of unemployment edged higher to 23.7 weeks, the highest level since April 2022. However, those reporting out of work for 27 weeks or more declined to 1.55 million, down 103,000.