We expect another strong employment report in January, with headline job gains remaining elevated at 200k (market consensus is at 170k currently). This would bring the 3m average growth to just above 220k, the fastest pace since Q1 2023. We expect the unemployment rate remained unchanged at 4.1%. We are also expecting average hourly earnings to tick up to +0.4% (vs. +0.3%) and hours to fall by a tenth to 34.2. Beyond the usual data elements, there will be two large technical adjustments to employment data in January. The annual benchmark revision for the establishment survey will reduce the March 2024 level of employment by around 733k (similar to the preliminary benchmark estimate of -818k). This adjustment will be distributed evenly over the twelve months prior to March 2024. Also, the January household survey will incorporate new Census population estimates for 2024. This should drive a large increase in the household survey measure of employment – we estimate an adjustment of 1.6mn. The simultaneous negative revision for NFP and positive adjustment to the household survey will go a long way towards closing the unusual gap which has emerged in recent years between these employment measures. Summary: In a week full of focus on tariffs recently announced by Trump, we believe NFP might only add to further dollar strength as well as rise in US bond yields, especially the short end. As a result, we expect curve flattening in 2-10 US SOFR to -.10 levels from current +.03 levels. Jan’25 NFP might only confirm the US exceptionalism narrative & lead to rates market pricing out 47 bps of cuts in CY25 to around 35 bps by next weekend.
