After a delay due to the partial government shutdown, and amid recent volatility in precious metals, tech selling, and megacap earnings, this Wednesday brings the monthly US employment data and a semblance of calendar normality. January’s report on the state of the labour market should finally move us away from the period of government shutdown uncertainty and distortions, with cleaner figures giving us a more accurate picture of the job’s scene. That means there could be more focus on this data, while recent positive comments by Jerome Powell on the state of the labour market and the release of annual benchmark revisions also point to the importance of this week’s release.
Consensus expectations
The headline number is forecast to print a gain of 68k jobs, just higher than the prior 50k print in December. Payrolls have essentially stalled over the past six months as labour demand abated and supply was restrained by decelerating population growth. Just as a reminder, the projected breakeven rate, that is the number needed to keep the unemployment rate steady and which Fed Chair Powell has commented on, is estimated between 0-50k.
The unemployment rate is expected at 4.4%, unchanged from the prior report and in line with the Fed’s central economic projection for 2026 year-end. Wage growth is predicted at 0.3% m/m and 3.7% y/y.
Benchmark revisions will be important for markets and could make for bleak reading. The revisions are where the Bureau for Labor Statistics (BLS) realigns their sample-based employment estimates with unemployment insurance population counts. A preliminary overestimate of 911k (roughly 76k per month) was seen for March 2025 and released last September, though Chair Powell recently suggested the overestimate is around 60k per month, so a 720k annual figure.
Employment indicators and other factors
Other job market data has pointed to a slowdown in hiring. The recent December JOLTS report showed a sharp drop-off in job openings, though the Indeed daily job postings remain steady. There is now less than one job opening per unemployed American with a quit rate of 2%. As a guide, post-pandemic there were two job vacancies for every employed American. This all suggests that wage growth should ease below 3% this year.
Jobless claims remained low during the period and while the Challenger report noted the worst January for lay-off announcements since 2009, they will be spread over a number of months. At the same time, the ISM services employment reported a second consecutive print above 50, indicating expansion, after six months of contraction. The ISM manufacturing reported the slowest pace of job losses for 12 months.
We have highlighted before that some of the details in the report will again be of interest. Over the past few years, most of the jobs (circa 90%) added to the economy have come from just three sectors, Government, private health and education, and leisure and hospitality. These jobs are typically not associated with being growth engines of the economy. In fact, if they were stripped out, payrolls would have dropped over the past several months.
Fedspeak on jobs
A key takeaway from the January FOMC meeting was officials sounding a little more upbeat on the labour market. Policymakers removed the line that “downside risks to employment rose in recent months” while suggesting that there have been “some signs of stabilisation” in the unemployment rate. Fed Chair Powell stressed that rates are now close to neutral, so future moves will be data‑dependent rather than pre‑set. In practice, that means the Fed sees enough labour‑market slack to stay on hold for now, but not enough weakness to justify rushing into another round of cuts. But many economists have questioned the stabilisation signs and disagree.
More broadly, officials are watching for an orderly cooling, and not a sharp deterioration in the labour market, which suggests headline prints near 50k and 4.5% fit that story. Their current central projection is for one 25bp cut in 2026, though some favour no cuts and others pencil in two or more, highlighting a still highly divided FOMC.
Money market pricing & reaction
Fed funds futures currently price just above two 25bp cuts by the end of 2026 versus current policy, implying roughly 55bps of easing from the present 3.50–3.75% range. The first cut is predicted by June, with a 40% chance of a move by April.
A very weak report could see the chance of a third rate cut get more priced in during 2026. The current 17% chance of a cut in March could also move higher and hurt the greenback, whilst boosting assets like stocks and gold.
Better than expected figures should give the dollar a mild bid and give stocks pause for thought. But the trend in these assets remains strong and markets will want to see more evidence of jobs growth in the weeks ahead.