A “Good” Jobs Report Could Still Be Bad News for Markets

Friday’s December employment report looms as one of the more consequential macro releases to start the year, not because economists expect a dramatic swing in the data, but because the labor market appears to be settling into a slow-growth equilibrium that the Federal Reserve is watching closely. With equities, rates, and the dollar all sensitive to even modest surprises at this stage of the cycle, the bar for changing policy expectations remains high, particularly with markets still centered on an April 29 rate-cut timeline.

Consensus expectations point to another soft month for job creation. Economists broadly expect nonfarm payrolls to increase by roughly 55,000–75,000 jobs, following a 64,000 gain in November. Estimates span a wide range—from as low as 25,000 to as high as 150,000—underscoring the uncertainty around hiring conditions. Private payroll growth is expected to account for most of the gains, with forecasts clustering around 60,000–75,000 jobs. The unemployment rate is expected to tick down modestly to 4.5% from 4.6%, though that decline is likely to reflect technical factors rather than a renewed surge in labor demand.

Wages remain a key focal point for policymakers. Average hourly earnings are expected to rise about 0.2% month over month, translating to roughly 3.5% year-over-year growth. That would mark a continuation of the deceleration seen over the past year, down from the 4% pace that prevailed through much of 2023 and 2024. With inflation hovering near 3%, real wage growth has slowed materially, suggesting diminishing inflationary pressure from labor costs—an outcome the Fed welcomes, even as it raises questions about household income momentum.

Sector composition will matter as much as the headline number. Health care is again expected to dominate job growth, having accounted for the bulk of payroll gains since spring. State and local government hiring should remain modestly positive, while leisure and hospitality may show incremental gains following strong holiday travel and spending. Manufacturing, by contrast, is likely to remain a drag. The sector has been shedding roughly 10,000 jobs per month for two years, and alternative data—including the Quarterly Census of Employment and Wages—suggest the true pace of losses may be understated in the establishment survey. Mining employment is also expected to decline, reflecting reduced oil drilling activity amid weaker economics in parts of the energy patch.

Several labor-market undercurrents point to gradual cooling rather than collapse. The share of workers holding multiple jobs remains near a century high, a sign that many households are supplementing income rather than finding better-paying primary employment. Involuntary part-time employment surged by more than 900,000 in November—an unusually large and volatile move that economists expect to partially reverse in December. Meanwhile, the share of unemployment attributable to voluntary quits remains historically low, signaling continued caution among workers about job prospects.

The quality and interpretation of the data remain front and center. The October and November reports were distorted by the government shutdown, which disrupted both employer and household surveys. While December’s data should be cleaner, lingering effects remain possible. More broadly, concerns persist that the establishment survey has overstated job growth through much of 2025. Chair Jerome Powell has openly speculated that payroll gains may have been overstated by as much as 60,000 jobs per month—an educated guess, but one that looms large when reported job creation has averaged only about 50,000–60,000 per month this year. Benchmark revisions due later this year are widely expected to be negative.

Because of these issues, economists and traders alike will be paying close attention to the household survey. Unlike payrolls, household employment and unemployment measures are ratios, making them less sensitive to some of the population and immigration distortions that complicate establishment data. Immigration flows have slowed sharply—and may even have reversed—making it harder to assess underlying labor-force growth and complicating month-to-month comparisons.

High-frequency indicators paint a consistent picture of subdued hiring. The ADP report showed 41,000 private-sector jobs added in December, slightly below expectations, though ADP’s track record as a predictor of BLS payrolls remains mixed. ISM surveys tell a similar story: manufacturing employment remains in contraction territory, while services employment rebounded into modest expansion. Initial unemployment claims hovered near 224,000 during the reference week, essentially unchanged from November, suggesting layoffs are not accelerating but hiring is not picking up meaningfully either.

Wall Street forecasts cluster tightly. Economists at Goldman Sachs and Bank of America both expect payroll gains closer to 70,000, with unemployment easing to 4.5% as furloughed federal workers return following the shutdown. Their takeaway is not labor-market reacceleration, but stabilization at a low level. Other forecasters echo that view, warning that seasonal noise could exaggerate month-to-month swings and that revisions may matter more than the initial print.

For the Federal Reserve, this report is unlikely to shift the policy path on its own. Expectations remain firmly anchored to a potential rate cut at the April 29 meeting, and it would likely take a meaningful downside surprise—combined with weak revisions or a sharp drop in wages—to pull that date forward. Conversely, a modest upside beat is unlikely to delay easing unless accompanied by a reacceleration in wage growth. In short, the bar to move expectations is high.

The broader narrative remains intact: the U.S. labor market is gradually weakening, not breaking. Unemployment is still low by historical standards, but the burden is falling unevenly, particularly on younger and Black workers. Wage growth has slowed materially, job growth is narrow and sector-specific, and confidence among workers appears fragile. Friday’s report should confirm that trend rather than overturn it—another incremental data point in a labor market that is cooling just enough to keep the Fed patient, but not enough to force its hand.