As we approach the end of the year, all eyes are on the first U.S. non-farm payroll report of 2024, which is set to be released tonight. Analysts predict a modest increase of 160,000 jobs for December, a significant drop from the prior month's robust gain of 227,000. The unemployment rate is expected to hold steady at 4.2%, while wage growth is anticipated to decline slightly to 0.3%, compared to last month's figure of 0.4%. This projected slowdown in job creation suggests that the labor market is experiencing a cooling trend, though it remains in a healthy overall condition. Consequently, the upcoming report may lend further support to the Federal Reserve's cautious approach regarding future interest rate cuts.

In 2023, the deceleration in job growth reflects not only the ongoing normalization of the labor market following the pandemic but also the sustained pressure from high interest rates aimed at curbing demand and controlling inflation. Even with this slowdown, the pace of job creation and other key indicators suggest that the United States is approaching a state of full employment. In November, the U.S. saw an average of 180,363 new jobs added each month, a rate comparable to that observed between 2010 and 2019, the longest period of job growth in history.

Despite the slowdown, the labor market remains resilient and stable. Recent U.S. employment data released this week presents a mixed picture. While November job vacancies unexpectedly increased, hiring activity softened, indicating that the labor market continues to cool off. However, this moderation may not compel the Federal Reserve to rush into interest cuts. The Labor Department’s Job Openings and Labor Turnover Survey reported that layoffs remain low, and workers are less inclined to leave their jobs voluntarily. The job vacancy-to-unemployment ratio in November was 1.13, up from 1.12 in October, yet still below the pre-pandemic average of 1.2 and significantly lower than the 1.43 recorded a year prior.

This trend highlights that, following a significant wave of hiring during the recovery from the pandemic, employers are now hesitant to expand their workforce further. Economists speculate that businesses might adopt a wait-and-see approach, examining how the new administration implements its policies. There are promises of tax cuts but also commitments to impose or significantly raise tariffs on imported goods, alongside the expulsion of millions of undocumented immigrants. These factors suggest that the labor market, inflation, and the economy could experience shifts in the coming weeks and months.

Another report from ADP revealed that private sector employment increased by a mere 122,000 jobs in December, the smallest gain in four months and below market expectations. The slowdown in hiring within the private sector indicates that demand for workers is continuing to wane. Employment growth across various industries was uneven, with the highest gains observed in education and healthcare services, construction, and leisure and hospitality. Conversely, employment numbers in manufacturing, natural resources and mining, as well as professional and business services, saw declines.

On a more positive note, the latest data on initial unemployment claims showed a seasonally adjusted decline to 201,000, marking the lowest level since February 2024. The four-week average of claims, adjusted for seasonal fluctuations, fell by 10,250 to 213,000. While initial claims can fluctuate at the start of the year, the unemployment rate remains steady at levels associated with low unemployment—a vital foundation for sustaining both the labor market and the overall economy.

As we contemplate these trends, it’s critical to pay attention to data that could unexpectedly show strength. Current overall employment data indicates that the gradual slowdown in the U.S. labor market may persist well into this year. Federal Reserve officials must balance this trend against the potential resurgence of inflation concerns as they decide on the extent of interest rate cuts in 2025 and beyond. The Fed has already implemented three rate cuts since embarking on its easing cycle in September, but it is anticipated that this year's reductions will be more limited, likely only two cuts, leading the central bank to emphasize that upcoming rate adjustments will be "gradual."

In a rather intriguing turn, gold prices and the U.S. dollar index have displayed a rare positive correlation this year. Given the market's low expectations for job growth in tonight's non-farm report, there is a possibility that the actual results could surpass forecasts. This would serve as a warning to the stock market, which has seen volatility at the start of the year, as concerns grow regarding the fading expectations for Federal Reserve interest rate cuts. The tech-heavy Nasdaq is particularly vulnerable to rising U.S. Treasury yields, as it seeks to defend the critical 21,000 benchmark.

Attention should also be given to whether the trend of gold and the dollar's correlation will be disrupted by the non-farm report. The continued rise in Treasury yields could pose limits on gold prices, which are currently facing resistance in the range of $2,680 to $2,700. However, with the dollar long position elevated, should the non-farm data fall short of expectations, it could significantly impact the dollar, which is already hovering near a two-year high. In this scenario, gold might seize the opportunity to break through its aforementioned resistance levels.