US: nonfarm payrolls on a roll

Labour market still solid: Despite a lower-than-expected gain in US employment in January, the upward revisions to the previous months support our view that the US labour market remains in good shape. With economic growth above trend and Trump policies adding to inflation risks, we see no reason for the Fed to cut rates further. The US labour market is in great shape, but not so tight that it is creating significant inflationary pressures (at least for now). Employment in the US rose by 143k in January, below the Bloomberg consensus of 175k. However, a 49k upward revision to month-on-month job gains in November and 51k in December, to 307k, mean that employment was higher than expected despite the January miss (see Chart 1) The 3-month average of employment gains stands at 237k, well above the 82k trough in August. Nonfarm payrolls overestimate monthly job gains by around 50k, but even after adjusting for that, the 3-month average remains above the c120k breakeven rate (the rate that keeps the unemployment rate steady), thereby bringing the unemployment rate down. Meanwhile, the tick down in the unemployment rate from 4.1% in December to 4.0% in January (consensus: 4.1%, Berenberg: 4.0%) took it further below the Fed’s long-term estimate of 4.2%. Nominal wages increased by 0.5% mom in January (the highest since June 2023) and stand at 4.1% yoy – consistent with a labour market in balance given the near-2% productivity gains over the past year.

No cuts in 2025: Recent Fedspeak suggests that the Fed’s “wait and see” approach remains intact, reinforcing the consensus view of no rate cut in March. The Fed is comfortable with current labour market conditions (especially after today’s downside surprise in the unemployment rate) and will continue to focus on the other side of the dual mandate—inflation. Looking ahead, we expect a slowdown in hiring, but the labour market will remain healthy due to low layoffs. We also foresee robust consumer spending and sticky inflation due to Trump’s proposed policies (mainly tariffs and deportations), which will prevent the Fed from cutting rates in 2025.

Different numbers, same narrative: The benchmark/annual revisions to household and establishment surveys did not change the story of labour market resilience. Markets and the Fed expected these revisions, so they were not a surprise and should not change the Fed’s assessment of the labour market. The updated figures show that nonfarm payrolls since 2023 averaged 191k mom, rather than the initially published estimate of 219k. Meanwhile, the household survey had even larger revisions, correcting the undercounting of net international migration over the past few years. However, the government will not revise any historical household survey data. The new estimates will only be reflected in upcoming releases, including today’s. The updated numbers show the US labour force at 170.7 million (up from 168.5 million), with 2 million more employed people than previously estimated. Although revisions added 0.1 ppt to January’s unemployment rate, the jobless rate still declined, highlighting the strength of the labour market (see more: US nonfarm payrolls preview: healthy labour market despite revisions).

Atakan Bakiskan

US Economist

+44 20 3207 7873

[email protected]

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