Payroll employment expected to post solid if not spectacular gains

January 6, 2025

Payroll employment is expected to rise by 150,000 in December, bringing the total number of new paychecks for the year to 2.19 million. That is close to the pace of job gains we saw 2019, prior to the hiring frenzy that followed quarantines.

The amount of time it takes to find a job once one has been lost has increased over the last year and is now above pre-pandemic levels. Wage gains have cooled, but at 3.7%, average weekly earnings are still running a full percent ahead of where they were in February 2020. The problem is prices are still well above pre-pandemic norms. The Federal Reserve’s job is not yet done. The Fed has made it fairly clear that they intend to skip a rate cut at the next meeting, after lowering rates by a full percent since September 2024.

Gains in the state and local sector are expected to account for 25,000 of those jobs, after rising by 35,000 in November. Federal employment is expected to slip by another couple of thousand in the last month of the year. Nearly one-third of the 2.4 million non-postal federal workers are over the age of 55 and are opting to retire. That is prior to efforts to downsize the federal government by the incoming administration. 

Gains at the state and local level outside of education are expected to outpace those in the education sector. Many school districts have finally recouped what was lost to those who opted out of education at the onset of the hiring frenzy, while school enrollments have been waning. The rate at which students are opting to go to college after graduation has slowed along with new school enrollments. The only major offset on the education front has been a push by several large states, regardless of party leaning, to provide universal pre-K. That is much needed life saver for parents struggling to afford the high cost of childcare and get the hours at work needed to provide for their children.

Hiring for non-education purposes has been greater, with much of that employment going toward infrastructure repairs. Repairs and rebuilding following the two monster hurricanes should provide additional support for those gains, as funding for disaster aid made it into the 11^th hour passage of the continuing resolution prior to the holiday break.

Private sector hiring has been highly concentrated in only two major sectors: healthcare and social assistance and leisure and hospitality sectors. Aging demographics and chronic shortage of childcare workers and the ongoing strength of travel and tourism have all helped.

Manufacturing employment is expected to add modestly after regaining some of what was lost to striking workers in the aerospace industry last month. However, new aircraft orders remained lackluster in November. The vehicle industry did better, aided by the need to replace vehicles in the wake of the devastation of hurricanes Helene and Milton and the push by consumers to purchase vehicles before tariffs hit.

Average hourly earnings are expected to rise 0.3% in December, that translates to an increase of 4% from a year ago. This represents a slight acceleration from what we saw over the summer, when average hourly earnings rose 3.8% from a year ago. The average work week is expected to hold at 34.3 hours, the same as November, and tied with what we saw pre-pandemic. The weak spot is overtime hours, which are now running about 17% below the pace we saw pre-pandemic in the manufacturing sector.

Separately, the unemployment rate is expected to hold at 4.2% in December, the same as it was in November. That is close to the peak this year, which was 4.3% in the wake of Hurricane Beryl in August. The household survey has performed much worse than the establishment survey. Preliminary data on the benchmark revisions on the establishment survey suggest it will be revised down significantly when the figures are released in February. These revisions are due to changes in what are known as the birth and death rates of firms.

The pace of new business formation remains elevated, but it is nowhere near the highs we saw emerging from quarantines. Many businesses that were started as the economy opened are now failing. That is something to watch along with the ranks of the long-term unemployed. The length of time it takes workers to find a job once they lose one has increased over the last year, along with the ranks of the under-employed. Childcare problems have increased as reasons why people are unable to work as much as they would like.