NFP Preview: Forecasts from 10 major banks, new year, same old labor market

The US labor market is holding up, but not quite as well as the headline numbers would suggest. We expect employment to rise by 180K in January. This would probably not be enough for the Fed to cut rates as early as March, as the market has priced in. We still expect the first rate cut in May.

We expect gains in payrolls to moderate to 150K from 216K in December, with the unemployment rate edging higher to 3.8% (3.7%) and hourly earnings growth slowing to +0.3% (+0.4%).  

We look for NFP growth of around 200K, once again led by government, leisure and hospitality and education and healthcare services. Nonetheless, the household survey is expected to show the unemployment rate ticking a little higher to 3.8%.

We look for a strong increase in payrolls at 230K. The NFP's annual benchmark and the update to seasonal factors will also add a wrinkle to this report. We expect the UE rate to rise a tenth to 3.8%, while wages likely rose 0.2% MoM.

Payroll employment is likely up by 195K in January, slightly below the 216K in December. The unemployment rate should continue to edge up to 3.8% from 3.7% in December, reflecting some easing conditions in the labour market.

Hiring could have slowed in the month, but this may have been offset by a decrease in the number of layoffs. With these two trends cancelling each other, job creation could have remained relatively strong at 185K. And while the household survey may show a much larger gain following the losses recorded in December, this could have been partly offset by a rebound in participation, leaving the unemployment rate unchanged at 3.7%.

We forecast a 165K NFP gain for January, which matches the average of the previous three months. The unemployment rate is expected to climb modestly to 3.8% from 3.7%. This is an estimate in rounding. In December, the unemployment rate was 3.74%, so we are expecting a very minor uptick.

The themes of improving supply, cooling demand and overall labor market normalization likely continued in January. We estimate that NFP rose by 155K in January, a downshift from December's gain and a bit below the current Bloomberg consensus. Although payroll growth has held up remarkably well recently, there are several signs of further moderation in the months ahead. On net, fewer industries are adding headcounts each month and job openings and hiring plans continue to pull back. Furthermore, initial jobless claims remain low, but continuing claims have edged up, which is an indication that displaced workers are having a more challenging time finding new work. We expect the unemployment rate ticked up to 3.8% and average hourly earnings increased 0.3%.

We expect job gains to remain solid with a pickup of 170K in the month, about the average three month pace in December. Government and healthcare hiring should continue to be the main source of employment, both sectors less sensitive to the business cycle. But perhaps more important than the January payroll number could be previous revisions. Recently, revisions have been material and this time around, we would not be surprised to see upward revisions given the surge in consumption, implying an even higher level of real income in the system. The unemployment rate and the participation rate should stay unchanged in the month while wage growth should moderate slightly to 0.3% MoM. 

Still generally low level of layoffs will likely result in a strong 240K increase in NFP in January, but strength on the surface could mask some still-weakening labor market details. The primary driver of the strong forecast is very low initial jobless claims in the first two weeks of the year (through the January reference period). But this dynamic is not new information and a stronger January payrolls may not be a sign that labor demand is reaccelerating. Underlying weakening in the labor market may still be present in January data, and this weakness could become more obvious into the spring when hiring generally picks up. The underlying trend of job growth is likely still slowing, particularly for private services payrolls. We also expect a 0.3% MoM increase in average hourly earnings in January, a softer increase than 0.4% in December and despite stronger January job growth, an unemployment rate in January of 3.9% from 3.7% due to a bounce-back in the labor force participation rate.