At 1:30 PM, the U.S. labor market report will be released; significant downward revisions for 2024 are expected 📌
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Employment Change: The market consensus is +173K; Bloomberg's consensus predicts a higher increase to +215K (compared to +256K in December).
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Revisions for 2024: Employment figures for 2024 are likely to be revised downward by over 900K jobs.
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Labor Force Growth: Adjusted upward by nearly 2 million due to population updates.
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Unemployment Rate: Expected at 4.16% (compared to 4.09% previously).
Employment Report Overview
The January employment report is expected to show continued strength in the labor market. Significant data revisions from the previous year may become the main focus. The Bureau of Labor Statistics (BLS) is anticipated to lower the employment estimates (NFP) for 2024 by over 900K jobs. Simultaneously, updates to the U.S. population estimates could raise the labor force estimates by nearly 2 million—the latest BLS population estimates increased the population count by about 3.6 million compared to the previous year.
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The market consensus for employment change currently stands at +173K. However, considering the positive surprise from Wednesday's ADP report (+183K vs. expectations of 150K), a similar trend might be expected for the NFP report. Bloomberg's consensus also supports this direction, predicting a significantly higher change at +215K.
Impact on Unemployment and Wages
With a larger labor force, the unemployment rate is expected to rise slightly to 4.16% (from 4.09%). Labor force participation may increase to 62.6% from 62.5%.
Source: XTB Research
Wage growth, a key component of inflation, is likely to remain moderately high. The market consensus expects a decline to 3.8% year-over-year from 3.9% in December. With more workers available, companies may face less pressure to increase wages, which could positively impact lower inflation dynamics. If wage growth slows, it would further support the Federal Reserve's case for interest rate cuts. Conversely, if wages remain stable or accelerate, it could undermine the current disinflation narrative and delay monetary policy easing.
Source: XTB Research
Market Implications
- Stock Market Reaction: The report may be viewed positively by the Fed, supporting expectations for interest rate cuts later in 2025. This reaction assumes solid employment levels alongside downward revisions for 2024 and reduced wage-driven inflationary pressure.
- Bond Market: Treasury yields may maintain a downward trend, provided the report supports reduced inflationary pressures and dovish outlooks from the Fed.
- Dollar Index: A weaker-than-expected employment report may put pressure on the USD, favoring riskier assets.
Before the data release, the market is showing slightly reduced appetite for riskier assets and a slight increase in the dollar's value. At the time of publication, EURUSD is down by 0.08%.
Source: XTB Research
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