With inflation allowed, investors have a key appointment with the United States labor market. After a brief delay in its publication due to the partial closure of the Government, the January report will be released this Wednesday under the watchful eye of the Federal Reserve (Fed) and in the middle of the signs that anticipate weakness. In fact, Bankinter believes that «it could provide clearer signals about the Fed’s next move because it will surely be lazy«. At the moment two rate cuts expected for this year, «that could be readjusted upwards «if the data suggests that the labor market is weaker than initially expected,» assesses Kathleen Brooks, research director at «new signs of deterioration». Therefore, the data will be very relevant and will have «immediate effects» on the prospects for future cuts by the Fed. «At the moment, the markets are discounting a upcoming 25 basis point rate cut in July, with some likelihood of an early cut in June«, indicates market analyst Manuel Pinto. «Swap interest rates – an indicator of the Fed’s expectations – have fallen 12 basis points since the Fed’s decision; In other words, half of an additional rate cut has been discounted. The June cut is already fully discounted; April’s is 50/50«, they say in ING Economics. Thus, and given the recent signs of a cooling of the labor market, «a weakest data than expected will revive concern about the dynamism of employment, reinforcing the expectations of further easing of monetary policy«says Hassan Fawaz, President and Founder of GivTrade.
WEAK DATA… THAT DOES NOT COME ALONE
And the consensus foresees that employment report is weak and show the creation of 70,000 new jobs compared to 50,000 the previous month. Likewise, the unemployment rate is expected to remain stable at 4.4%.
«We do not expect a large number of non-agricultural payrolls. Some analysis houses estimate their figures at almost 100,000, but We don’t think they’ll even reach half. What is really important is the unemployment rate, in which we do not expect changes during the past month,» explains Pinto. «The general expectation is that non-agricultural employment will grow by 70,000 positions, compared to 50,000 in December, that the unemployment rate will remain stable at 4.4%, and that average hourly earnings growth moderates slightly to 3.7% year-on-year. «Markets will be closely watching the non-farm employment numbers given the weak job creation since May,» acknowledges Ronald Temple, chief market strategist at Lazard. Still, there is a risk that the data is weaker and that it could even be the worst January in job creation since 2009 due to the heavy layoffs of amazonUPS… And, for now, the JOLTS survey recorded in December the lowest level of job offers since 2017, except in March and April 2020, at the depths of the pandemic. Furthermore, the employment in the US private sector has shown the creation of 22,000 jobs in January, based on data from the consulting firm ADP, lower than the 37,000 new payrolls in December, «in an uninspired month for hiring«, as Nela Richardson, chief economist of the organization, has pointed out. But this official report on the labor market will be accompanied by the annual reviews for the whole of 2025which in September were estimated at -911,000 positions. «The Federal Reserve believes that the real overestimation is around 60,000 jobs per month, which would imply a downward revision of about 720,000 jobs per yeara figure probably more realistic than confirming the initial 911,000″, stated in Renta 4 Banco. Bankinter also considers that the revision of the 2025 figures will be «probably downwards»although the market has already discounted it because that was also the case in the previous review. «The January payroll report will be the highlight, since we will also know the revisions to the reference payrolls. The revisions data could reduce March 2025 payrolls by 863,000 jobs, suggesting several months of negative payrolls in 2025 and would present a much bleaker outlook for the US labor market» Brooks remarks. «This would not be a good look and would mean that pressure on the Fed to cut rates of interest ahead of the midterm elections would undoubtedly increase«, they conclude in ING Economics.
