MNI US Payrolls Preview: Watch The Forest, Not Just The Trees

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Executive Summary

• Wednesday sees an unusual BLS nonfarm payrolls report after a brief delay following last week’s government shutdown, with January details released at 0830ET.
• The report will need to be assessed holistically rather than focusing on any single number, although the unemployment rate should offer the cleanest single take.
• Consensus looks for a circa 70k increase in nonfarm payrolls coming almost entirely from private payrolls.
• Some specific factors beyond more eye-catching calls are Scotiabank warning on a drag from the expiry of ACA subsidies and Morgan Stanley on a potential 35k public sector drag when accounting for a somewhat extended deferred resignation program.
• The unemployment rate is expected to hold at 4.4% after last month’s surprise drop to 4.38% from 4.54%, leaving a profile of broad stabilization on net since Aug/Sept. In doing so it ruled out a more dovish base case that seven FOMC members had pencilled in at the December SEP.
• Along with typical two-month revisions, we will also see annual adjustments from the benchmark revision up to Mar 2025 (a large negative revision in the region of -800k is roughly expected), a new birth/death model from Apr 2025 onwards and seasonal adjustment factors for the past five years.
• The household survey population control which would usually come with this month’s January report has been delayed to next month’s February report due to last year’s extensive government shutdown.
• We suspect the market is shaping up for a weaker number than the 68k consensus for NFPs after last week’s suite of weak labor releases and today’s (Monday’s) comments from NEC’s Hassett on not panicking about lower jobs numbers despite appearing to talk on broader trends.
• With Tuesday’s retail sales for December still to come, the market currently sees a next Fed cut with the June meeting under a new Fed Chair (former Fed Governor Warsh awaiting nomination proceedings).
• In the event of a large surprise, which will presumably see suspicion given ongoing data quality issues, the February payrolls report on Mar 6 will allow the FOMC to see whether those surprises are confirmed before the Mar 17-18 FOMC meeting and its fresh economic forecasts/dot plot.