After the week kicked off with acute tariff volatility as sharp moves in FX and stocks were reversed, attention now turns to the monthly US employment report, in the shape of the non-farm payrolls report. The headline figure is widely considered to be a measure of US national economic health and has always been seen as one of the marquee risk events on the calendar. Employment forms one part of the Fed’s mandate, so is key in helping officials make decisions about future monetary policy.
This report 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.
Data expectations
Consensus currently sees around 170k of nonfarm payrolls added in January, versus the big beat of 256k in December. That took the three-month average to 170k per month, the six-month average to 165k and the 12-month average to 186k. That compares with the 2023 average of 251k jobs added. Â The unemployment rate is seen unchanged at 4.1%. so lower than the latest FOMC projection of 4.3% by year-end 2025. Average hourly earnings are seen rising +0.3% m/m. An above-consensus wage print could fuel concerns about accelerating pay growth, which might limit the Fed’s scope to continue cutting rates this year. That is despite Fed Chair Powell stating at the recent FOMC meeting that the current labour market was not a source of inflationary pressures.
Other labour market indicators have been mixed on labour demand. 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 could alter the headline prediction. Tuesday’s JOLTS job vacancies were much lower than expected, painting a mixed picture of the labour market. The falling quits ratio also showed a cooling jobs environment with fewer opportunities. Wednesday’s ADP private payrolls for January does not historically predict NFP very well.
There is one added complication to consider. The annual benchmark revisions get published and can have an impact on the wider picture for the labour market. Last year saw a big downward revision of around a third of jobs previously added; that is a cumulative 818k. That meant the average from April 2023 to March 2024 was reduced to 174k from 242k. This time around, economists estimate smaller revisions, of roughly 650k.
Market reaction
A return to an underlying trend pace of job growth is the consensus call. Big outliers in the headline print will be needed to get the market’s focus at present. Tariffs and US trade policy are front and centre with eyes on any tariffs on Europe, and any negotiations with China.
Markets believe President Trump’s bark is currently bigger than his bite, so are looking through a lot of the noisy initial announcements. That has seen the dollar sell off sharply, after it didn’t make new cycle highs on the initial Canada and Mexico news over the weekend. USD may find support at the October 2023 high at 107.34. This corresponds with a resistance zone around 1.0448 in EUR/USD.