US non-farm payrolls preview: modest gains expected as labour market cools

US​​​ non-farm payrolls report preview

Friday's United States (US) non-farm payrolls (NFPs) report arrives with expectations firmly anchored around modest job creation. Consensus estimates point to around 70,000 new positions in December, representing one of the weaker monthly gains in recent years.

​The wide forecast range, spanning roughly 25,000 to 155,000 jobs, highlights uncertainty about current hiring conditions. Private payrolls data showed only 64,000 jobs added in December, falling short of expectations and underscoring weak labour demand.

​For traders, the report carries significant weight for Federal Reserve (Fed) policy expectations and could drive sharp moves across equities, bond yields and the US dollar. Understanding what to watch beyond the headline number becomes crucial.

​Weak headline meets falling unemployment

​The 70,000 consensus represents a marked slowdown from historical norms. Monthly job gains averaged well over 200,000 during much of the post-pandemic recovery, making the current expectation look particularly anaemic.

​The unemployment rate is forecast to tick down to 4.5% from 4.6%, an apparently positive development that might seem at odds with weak payrolls growth. This divergence stems from different data sources: payrolls come from employer surveys, while unemployment derives from household surveys.

​Distortions from previous government shutdowns could still be affecting the data, making month-to-month (MoM) comparisons trickier than usual. A falling unemployment rate won't necessarily signal labour market strength if it's driven by declining labour force participation.

​Average hourly earnings will receive close scrutiny. If wages accelerate even as hiring slows, it would present the Fed with an awkward mix of weak growth and stubborn inflation pressures, complicating the policy outlook.

​Forward-looking indicators paint concerning picture

​November's Job Openings and Labor Turnover Survey (JOLTS) data revealed a sharp decline in job openings, typically a leading indicator of future hiring intentions. When companies post fewer vacancies, it generally signals reduced confidence and presages softer payrolls growth ahead.

​The drop in openings reinforces the view that December's modest headline isn't just statistical noise. It appears to reflect genuine weakness in labour demand that could persist for several months.

​The quits rate has also been trending lower. When fewer workers voluntarily leave their jobs, it suggests reduced confidence in better opportunities elsewhere, another sign of labour market cooling.

​Revisions could matter more than the headline

​Experienced traders know that two-month revisions can materially shift the interpretation of labour market strength. Large downward revisions to prior months would amplify concerns about weakening momentum, even if December's headline comes in close to expectations.

​The Bureau of Labor Statistics has made substantial revisions in recent reports. If October and November figures are revised lower, it would paint a more worrying picture than the raw December number alone.

​Markets often see dramatic moves when the headline number and revisions tell conflicting stories. A stronger-than-expected December print accompanied by large negative revisions creates genuine confusion, typically resulting in choppy price action.

​Fed rate cuts and market implications

​Weaker jobs data would reinforce market pricing for additional Fed rate cuts this year, potentially adding 50 basis points or more to current expectations. The dollar would likely weaken, while equities might initially rally before growth concerns take hold.

​Stronger results would temper rate cut bets, supporting the dollar and potentially weighing on equity valuations.