US NFP Prep

On Friday, the 9th of January, the BLS releases the December Employment Situation Report, including Nonfarm Payrolls, Unemployment Rate, and Average Earnings.
Here are some views on what to expect.

Forecasts
US Nonfarm Payrolls Forecast 70k, Previous 64k Range 155k / 23k
US Unemployment Rate Forecast 4.5%, Previous 4.6% Range 4.7% / 4.3%
US Average Earnings YoY Forecast 3.6%, Previous 3.5% Range 3.7% / 3.4%
US Private Payrolls Forecast 75k, Previous 69k Range 120k / 35k

General Expectations
US Stocks
A stronger-than-expected report, solid payroll gains, stable or lower unemployment, and firm wage growth, could support equities by reinforcing confidence in economic resilience and earnings growth.
A weaker-than-expected outcome may weigh on stocks, particularly cyclical and consumer-sensitive sectors, as it signals slowing demand and softer income growth.
US Dollar
A robust jobs report typically supports the dollar, as it reduces expectations for near-term Federal Reserve easing.
A soft report may pressure the dollar, with markets pricing in slower growth and a more dovish policy outlook.
US Government Bond Yields
Upside surprises in payrolls or wages could push yields higher, reflecting firmer growth and inflation expectations.
Downside surprises generally lead to lower yields, as investors anticipate slower activity and increased odds of rate cuts.
Federal Reserve Policy
A firm labour report would reduce pressure on the Fed to cut rates, supporting a patient or higher-for-longer stance.
A weak report, particularly rising unemployment or slowing wage growth, strengthens the case for a more accommodative policy path as labour-market slack builds.

Commentary
The labor market is still treading water. The US economy shed a net 41K payrolls from September to November, bringing the three-month average job gain to just 22K. For context, the run rate was 111K in the first three months of the year.
Although much of the recent weakness can be attributed to workers participating in the federal government’s deferred resignation program being removed from the payroll in October, private sector hiring outside of healthcare & social assistance has also slowed to a crawl.
Perhaps more concerning, the unemployment rate hit 4.6%, rising above the Fed’s estimate of the longer-run neutral rate. The lag in data collection during the shutdown increases the standard of error around these estimates.
However, climbing unemployment over the past few months would be consistent with concurrent trends in the quits rate, continuing jobless claims and the Conference Board’s labor differential.

The next jobs report will be released on schedule on Jan. 9. The BLS’s regular statistical methodology will resume with the December release, giving more reliable insight into the state of the labor market.
We expect the challenges suppressing labor demand and supply to keep hiring weak compared to historical norms, but we do not foresee significantly more slack building in the labor market.
One trend likely to remain is softer wage growth, which should keep a lid on labor-induced inflation pressures.

Goldman Sachs
Nonfarm payrolls are estimated to have increased by 70k in December, supported by a moderate pace of private-sector job growth indicated by big-data measures. Offsetting this, government payrolls are expected to decline by 5k, reflecting a drop in federal employment and flat state and local payrolls. Construction hiring is also expected to slow sequentially after an outsized gain in the prior month, partly due to unusually poor weather early in the survey period.

The unemployment rate is estimated to have edged down to 4.5% from 4.6%, helped by a low bar for rounding down, a slight decline in continuing claims, and the return to work of furloughed federal employees who had boosted temporary layoffs and government unemployment in November. Average hourly earnings are estimated to rise 0.25% m/m, reflecting negative calendar effects.

JPMorgan
JPMorgan’s Feroli expects 75k jobs added, above the Street’s 59k estimate, following 64k in November. He sees the unemployment rate at 4.6%, in line with the prior unrounded 4.564%, and average hourly earnings up 0.3% m/m and 3.6% y/y. Overall, this points to an inline to slightly stronger employment report relative to consensus.
For options expiring on January 9, the market is pricing ~1.2% move, as of market close on Jan 2.

The broader context is a consumer-led expansion with surprisingly weak hiring. What was thought to be a soft patch in late summer/Q3 never materialized, with GDP at 4.3% in Q3 and 3.8% in Q2, even as hiring lagged. The question now is whether hiring begins to catch up and provide additional support to already-strong consumer activity. The NFIB Small Business Hiring Sub-index, a reliable leading indicator for NFP that typically signals trends 1–2 months ahead, has been trending higher since the summer. That improvement may not fully show up in this week’s print, but it points toward accelerating hiring ahead, with the key open question being whether such a pickup eventually adds to inflationary pressure.

Previous Release
US Nonfarm Payrolls Actual 64k (Forecast 50k, Previous 119k)
US Unemployment Rate Actual 4.6% (Forecast 4.5%, Previous 4.4%)
US Average Earnings YoY Actual 3.5% (Forecast 3.6%, Previous 3.8%, Revised 3.7%)
In the previous report (November), nonfarm payroll growth slowed, indicating moderating hiring momentum. The unemployment rate edged higher, suggesting a gradual loosening in labour-market conditions. Average hourly earnings growth softened, pointing to easing wage pressures and reduced upside risk to inflation. Overall, the data signaled a labour market that remained resilient but was cooling steadily as the economy moved toward year-end.

Markets rallied and the US dollar sold off because the jobs report showed a labour market that is still growing but clearly cooling, particularly through softer wage inflation.
While payrolls came in slightly above expectations, hiring slowed sharply versus the prior month, the unemployment rate rose more than forecast, and average earnings growth undershot expectations and was revised lower.
This combination reduced inflation risks and reinforced expectations that the Federal Reserve can ease policy without triggering a recession, which pushed yields lower, weakened the dollar, and drove a sharp equity rally as investors repriced rates and discount factors in a more supportive direction.