Private employers added 122,000 new jobs in December, marking a slowdown from November's 146,000 and falling short of expectations. With hiring contracting in key industries like manufacturing, the labor market appears to be losing steam heading into 2025.

In a report published Wednesday, Automatic Data Processing Inc. highlighted the results of its National Employment Report, which comes ahead of Friday's crucial non-farm payroll data from the government.

“Hiring slowed in several industries. Employment in manufacturing shrank for the third straight month,” according to the December ADP National Employment Report.

Nela Richardson, ADP's chief economist, said: "The labor market downshifted to a more modest pace of growth in the final month of 2024, with a slowdown in both hiring and pay gains. Health care stood out in the second half of the year, creating more jobs than any other sector."

The ADP National Employment Report sets the stage for the jobs report from the Bureau of Labor Statistics on Friday, where economists forecast a significant reduction in the pace of employment growth from November's 227,000 to 154,000.

In a separate release, initial jobless claims fell to 201,000 for the week ending Jan. 4, down from 211,000 the previous week and below the forecast of 218,000. This marks the fourth consecutive decline in weekly jobless claims, suggesting that while hiring has slowed, companies are still holding on to workers.

Continuing claims edged higher, rising from 1.844 million to 1.867 million, though coming in just under expectations of 1.87 million.

December Highlights: Where Did Jobs Grow?

In December, the U.S. labor market showed mixed results, with gains concentrated in service-providing industries, while goods-producing sectors struggled.

Goods-producing industries added 10,000 jobs in December, led by construction, which gained 27,000 payrolls.

Manufacturing shed 11,000 jobs, marking its third consecutive month of declines.

Service-providing industries added 112,000 jobs, down from November's 140,000. The strongest gains came from education and health services, which added 56,000 payrolls, while leisure and hospitality contributed 22,000. Trade, transportation and utilities — a barometer of consumer demand — grew by 8,000 jobs.

Overall, private employment grew by 122,000 in December, missing economist expectations of 140,000, as tracked by TradingEconomics.

The ADP report showed continued cooling in wage growth. Salary increases for job stayers eased to 4.6% year-over-year in December, down from 4.8% the previous month. For job changers, pay gains edged lower to 7.1%, compared to 7.2% in November.

The deceleration in wage growth is likely to provide some relief to the Federal Reserve, which has been closely monitoring labor market conditions as part of its fight against inflation.

Market Reactions

Markets showed a measured response to the ADP report, with investors keeping an eye on minutes expected Wednesday afternoon from the latest Federal Reserve meeting and geopolitical developments.

The U.S. dollar initially gained ground on Wednesday, fueled by renewed comments from President-elect Donald Trump on potential tariffs. Yet the greenback eased slightly after the ADP report, with the U.S. dollar index, tracked by the Invesco DB USD Index Bullish Fund ETF , up by 0.4%, trimming heavier early morning gains.

In bond markets, yields on longer-dated Treasuries softened after the data release but remained elevated. The 10-year yield rose 2 basis points to 4.7%, near its highest levels since November.

Equity markets were mixed during premarket trading in New York. Futures for the S&P 500 edged up 0.1%, while Nasdaq 100 futures climbed 0.2%. Futures tied to the Dow Jones dipped 0.2%. On Tuesday, the SPDR S&P 500 ETF Trust ( SPY ) fell 1.1%.

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