US Nonfarm Payrolls Prep
US Week Ahead

US Nonfarm Payrolls Prep

On Friday, the 7th of February, at 08:30 ET, the BLS releases the latest Employment Situation report representing January.
Here are some views on what to expect.


Overview
For Nonfarm Payrolls, the median expectation is for it to move down to 170K from 256K.
According to a survey of 65 qualified economists, the highest estimate is 230K, and the lowest is 105K.

As for the Unemployment Rate, the median expectation is for it to remain unchanged at 4.1%.
The highest estimate sees it at 4.2%, the lowest sees it coming in at 4%


General Expectations
Despite inflation being the biggest worry in the Fed’s dual mandate at the moment, the employment situation in the US is still highly monitored by the markets and Fed officials, with NFP holding the spotlight for traders to hopefully gain an insight into the economy’s health but also for signs that will open the door for more potential Fed rate cuts to stimulate the economy.
It’s an extremely murky line as to what the data will represent; a too-high NFP headline figure shows great strength in the economy, however, closes the door for a case to be made for more potential rate cuts.
If we were to see surprisingly strong employment data with NFP coming in much higher than expected, like last time, and the Unemployment rate hovering around it’s current level or slightly declining, then we could expect to see strength in the dollar and yields with weakness following in US stocks as traders price in less cuts for 2025.
If we were to see NFP decline much more than is expected, possibly even to it’s forecast, there’s a likelihood to see strength in US Stocks and weakness in the dollar and bond yields as traders hope to see the potential for more rate cuts for 2025.


Commentary
Wells Fargo
We suspect the January jobs report will continue to indicate the labor market has softened over the past year, but not to an alarming degree. We look for next week’s report to show a net 185K jobs were added in January, which would mark a slowdown from November’s and December’s robust gains but a faster pace than averaged over the second half of 2024 (chart). Colder-than-usual temperatures throughout much of the country in January likely weighed on hiring in more seasonally sensitive industries, such as construction and leisure & hospitality. Meantime, the jump in jobless claims during the survey week points to the devastating L.A. wildfires also taking a toll on hiring in January.

Still, the background is ripe for another month of decent job growth. The downward slide in labor demand is showing nascent signs of levelling off, and layoffs remain historically low. The low-layoff environment has helped the past years’ January prints handily beat expectations, in our view, as seasonal adjustment factors “expect” to see more employees roll off at the start of the year than has been the case. We see the pace of hiring as keeping the unemployment rate steady at 4.1%. Average hourly earnings likely advanced 0.3% in January, underscoring that even as price growth remains stuck above target, the labor market is no longer a threat to the inflation side of the Fed’s mandates

The January Employment Situation released next Friday will also incorporate a number of routine annual revisions. The most headline grabbing will come with the final “benchmark” revision, but updates to the birth-death model, seasonal adjustment factors in the establishment survey and population controls in the household survey that will better reflect the recent surge in immigration all have potential to alter the narrative of an orderly moderation in the labor market. We detailed the expected changes and their implications in a recent report, but for the reader short on time, the following are our key takeaways: (1) The benchmark revision is a lagged indicator of labor market strength, showing hiring was not quite so impervious to the FOMC’s tightening cycle in 2023 and early 2024; (2) imputed job growth from the birth-death factor is likely to be revised lower from March 2024 onward, but not enough to change the picture of solid hiring; (3) updated seasonal adjustment factors could alter hiring’s momentum heading into this year, but Q4’s 170K pace leaves some room to give before the trend looks worrisome; (4) a large population adjustment to the household survey has scope to close the gap between the establishment and household surveys’ measures of employment growth, but it should have little bearing on the unemployment rate and other ratios within the household survey.

Source: US Department of Labor and Wells Fargo Economics

CMC Markets
Economists estimate that the US economy added 160,000 payrolled workers in January, down from 256,000 in December. The unemployment rate is expected to remain unchanged at 4.1%. Meanwhile, average hourly earnings are projected to be up 3.8% in the year to January, easing from December’s 3.9% uptick.

While solid, these estimates do not suggest the market expects a blowout report. However, a stronger-than-expected payrolls reading could boost the dollar against the euro, potentially bringing the euro’s recent rally to an abrupt end. The most significant risk for the euro is a break below the downtrend that formed in October, as that could signal the failure of the recent breakout attempt. In this scenario, EUR/USD might fall below $1.025, potentially putting the two currencies back on track to hit parity in the near term.

Scotiabank – Derek Holt (economist at Scotiabank)

The first US nonfarm payrolls report of the year lands on Friday and will reveal what happened in January. I went with a gain of 205,000 and a slight uptick in the unemployment rate to 4.2%.

The unemployment rate may rise because it is drawn from the companion household survey that registered a massive 478k rise in employment in December and a more modest 243k rise in the labour force. Mean reversion is assumed to impact employment more than the labour force for now and at least until tighter immigration policy gradually begins to be impactful later.

The report is unlikely to carry the day for Fed watchers or market participants. The FOMC is signalling a patient stance as it takes in much more data and more information on developments within an economy that is in excess aggregate demand. A positive output gap risks keeping inflationary pressures alive—thereby discounting limited recent inflation progress—while setting the stage for more inflationary pressures if fiscal and regulatory easing are applied and for greater passthrough risk of tariffs in an economy absent slack.


Previous Release
On  January 10th at 08:30 ET, the BLS released the US employment situation report representing the month of December.
US Nonfarm Payrolls came out at 256k – the highest since August 7th 2024, above estimates of 165k, and the revised prior of 212K.
The Unemployment Rate came out at 4.1%, below estimates of 4.2%, and the prior of 4.1%.

With NFP coming in much higher than expected, it sent US stocks plummeting and the dollar and bond yields rising as traders priced in less cuts for 2025.