The Labor Department released its final jobs report for 2024 this morning. It showed another strong month of job growth, with 256,000 new payroll jobs reported.

Payroll growth was concentrated in particular sectors, like health care (+46,000), leisure and hospitality (+43,000) and government, (33,000), as it has been for months – while it also bounced back in retail trade (43,000). Wages grew by 3.4% on an annualized basis in December and 3.9% over the entire year. On the household side, unemployment dipped a little to 4.1%, while other indicators showed little change.

What do these numbers say about the labor market as we head into 2025?

Payroll growth has been somewhat uneven over the past half year, with two strong months in a row (November and December) but some quite weak ones earlier (August and October). It has averaged 170,000 over the past 3 months and 165,000 over the past 6 months – down from the torrid pace of 2021-23 for still very solid. Unemployment has risen by about a half percentage point this past year, but at 4.1 or 4.2% it also indicates a still strong labor market. And wage growth remains ahead of inflation, giving workers some real gains, while not being so high as to generate rising inflation. In all, the labor market remains strong and steady.

The Federal Reserve has indicated that, after lowering its benchmark rate 3 times this fall (by a full percentage point), it will likely reduce it twice more in 2025, while it waits for more information on the state of the economy. The rate cuts of 2024 probably helped avert the recession that some analysts feared several months ago. Meanwhile, the rate of inflation has crept up a bit in the past 6 months, according to the Consumer Price Index; but it remains quite steady and closer to the Fed target of 2% if one focuses instead on the GDP Price Deflator, as the Fed does.

Does this imply that the labor market will remain solid throughout 2025? Without any major policy changes, there is no reason to expect a major dampening of the job market, as long as we see no major resurgence of inflation.

But the bigger source of uncertainty now is what the new Trump administration will mean for the economy. Trump has promised large tax cuts, rising tariffs, and mass deportations of undocumented immigrants – while even the legal immigration that has been so important to the labor force will likely decline as well. All of these policy changes would be inflationary and cause labor market disruption while adding to the federal debt, which is also growing rapidly. Indeed, while the stock market has boomed since the election, the bond market indicates growing concerns about inflation and debt growth, with the 10-year rate rising by a half percentage point (to about 4.7%), even as the Fed has continued to cut rates.

In other words, the labor market and the economy remain strong and solid on their own, but could be undone by foolish economic policies that our politicians might implement. The Federal Reserve is right to be cautious and see how all of these factors play out in 2025.