It’s the first Friday of the new year and the new month which brings the release of the all-important US monthly jobs report. The non-farm payrolls data should further inform the state of the labour market in the world’s biggest economy, as policymakers at the Fed deliberate on their next interest rate decision on January 28th. Markets do not expect more policy easing in a few weeks’ time, but a very weak set of figures would increase the current less than one in five chance of a move. That would hit the dollar after its torrid 2025, while further boosting gold and stock markets rallies, potentially to new highs.
Consensus expectations
The headline number is forecast to print a gain of 70k jobs, which is virtually unchanged from the prior 64k seen in November. That is just above the 12-month average of 55k jobs, but about one-third of 2024’s pace and below the 6-month average. That reflects the clear downshift in the labour market as hiring has decelerated, especially through the government shutdown into year-end. 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 forecast to print at 4.5%, marginally lower than seen in November and in line with the Fed’s central economic projection for 2025 year-end. The Fed’s latest median forecast released in December predicts an unemployment rate of 4.4% by the end of 2026. Wage growth is expected at 0.3% m/m and 3.7% y/y.
Employment indicators and other factors
The small business hiring survey, which often leads NFP trends by one to two months has been rising since the summer and could suggest a potential acceleration in hiring. We got the usual leading metrics including the JOLTS, ADP and weekly jobless claims ahead of Friday’s jobs report. ADP private sector payrolls modestly missed estimates while JOLTS job openings were also weaker than expected. The latter reinforces the ‘low hire, low fire’ theme and the “gradual cooling” narrative. ‘Indeed’ job postings jumped in December and late November which should have signalled an upbeat JOLTS job openings. Continuing claims have recently trended lower so could indicate a dip in the jobless rate.
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 added (circa 90%) 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 these were stripped out, payrolls would have dropped over the last several months.
Fedspeak on jobs
Fed Chair Powell recently stated that the Fed thinks job gains have been overstated by up to 60,000 per month. More broadly, officials are watching for an orderly cooling, and not a sharp deterioration in the labour market, which means prints near 50k and 4.5% fit that story. Certainly, rate setters have stressed data dependence as key and warned markets not to expect more aggressive rate cuts unless the jobs outlook weakens more sharply. Their current central projection is for one 25bp cut in 2026, though some policymakers favour no cuts and others pencil in two or more, highlighting a highly divided FOMC.
Money market pricing & reaction
Fed funds futures currently price just over two 25bp cuts by the end of 2026 versus current policy, implying roughly 58bps of easing from the present 3.50–3.75% range. The first cut is predicted around mid‑2026, with a high probability (roughly 80%+) of at least one move by June if data co‑operate.
A weak report could see the chance of a third rate cut get more fully priced in during 2026. The current just less than 20% chance of a cut in January would also move and hurt the greenback, whilst boosting assets like stocks and gold. A very bad report would cast a shadow over the outlook for the economy going forward and could see risky asset pause their record-breaking rally.
Better than expected figures should give the dollar a bid and hold back further gold gains. But the trend in these assets remains strong and markets will want to see more evidence of jobs growth in the weeks ahead, especially as the government shutdown has caused messy data for a few months.