While markets navigate the incoming potential policies of the second Trump administration, the rare (second) Friday of the month means the release of the monthly US non-farm payrolls figures. This report always plays an important role in markets for traders as the data typically offers volatility and opportunities to trade in and out of positions. The snapshot of the labour market will also give us a good health check on US consumers, who have driven the exceptional US economy over the past several quarters.
US job numbers have been volatile over the final quarter of 2024 due to weather related and industrial action disruptions, but the December data is predicted to normalise. We also note that the deviation of analyst forecasts from actual prints is narrowing. That points to the pandemic bump no longer changing estimates by a wide margin.
Data expectations
Consensus currently sees around 160k of nonfarm payrolls added in December, versus the rebounding 227k in November. An inline print would bring total 2024 job creation to 2.144 million which is solid but would be the lowest annual total, outside of a Covid affected loss in 2022, since 2019’s 1.988 million.  The jobless rate is seen unchanged at 4.2%. so lower than the latest FOMC projection of 4.3%. Unemployment is expected to remain steady throughout the Committee’s forecast horizon, before settling around 4.2% in the long term. We should caveat this by the fact that Fed officials premised their December views on different assumptions regarding the policies of the incoming Trump administration. That suggests that as actual policies are enacted, the Fed’s view is very likely to change in the months ahead.
Meanwhile, average hourly earnings are seen rising +0.3% m/m, with the annual rate seen remaining at 4.0%. The prior wage figures surprised to the upside, and markets will be watching to see if this continues or normalises. Another above-consensus wage metric could fuel concerns about accelerating pay growth, which might limit the Fed’s scope to continue cutting rates ahead. That is despite Fed officials arguing that the current labour market was not a source of inflation pressures.
Other labour market indicators have been mixed on labour demand. Surveys point to hiring rates slowing below pre-pandemic levels and job openings have normalised. However, both the weighted-average ISM employment index and NFIB hiring intentions indicators picked up at the end of last year.
Additional labour market readings to be released before payrolls will probably change the headline prediction. They include Tuesday’s JOLTS job vacancies, though data collection issues are threatening the reliability of this metric. Wednesday’s ADP private payrolls for December, and Challenger job losses the following day will also add colour to economists’ guestimates.
Market reaction
Inline figures should all be consistent with a gradual cooling of the jobs market. After 100bps of Fed rate cuts in 2024, policymakers were likely factoring this in when they revised the December Dot Plot to only two cuts this year. That should leave the underlying macro story in place and be broadly supportive of the dollar, especially with one eye on Trump’s potentially inflationary policy mix.
That has driven the greenback to fresh two-year highs at the start of the year at 109.53 on the Dollar Index. The 21-day SMA is currently below at 107.96. Major support is the October 2023 high at 107.34. This corresponds with a resistance/support zone around 1.0448 in EUR/USD. The recent cycle low is 1.0222 which bears could challenge if we get strong data.
Money markets currently do not fully price in the next 25bp Fed rate cut until the middle of the year. There are now around 39bps priced in for the whole of 2025.