The January non-farm payroll report is coming tonight, with the market expecting a moderate growth trend

According to the Zhitong Finance APP, the highly anticipated employment report to be released by the U.S. Labor Department on Friday will be affected by annual benchmark revisions, new population weights, and updates to seasonal adjustment factors. Job growth in the U.S. is expected to slow in January, partly suppressed by wildfires in California and cold weather across much of the country, but this is not enough for the Federal Reserve to resume interest rate cuts before the end of the first half of the year.

Nevertheless, economists expect the healthy labor market to remain unchanged. The unemployment rate is expected to be 4.1%, with layoffs at historically low levels and wages steadily rising.

The resilience of the labor market is a driving force behind economic expansion and provides the Federal Reserve with room to pause interest rate cuts while policymakers assess the impact of the Trump administration's fiscal, trade, and immigration policies, which economists believe could lead to inflation.

"There will be some noise, but the overall message will be a continuation of a relatively healthy labor market," said Dan North, senior analyst at Allianz Trade Americas. "There is no reason to disrupt this narrative."

A Reuters survey of analysts shows that non-farm payrolls are expected to increase by 170,000 in January, compared to an increase of 256,000 in December.

It is estimated that the wildfires in Los Angeles have reduced up to 25,000 jobs, most of which are expected to come from the accommodation and food services and domestic services sectors. The cold temperatures and snowstorms covering large areas of the country may lead to construction site shutdowns and affect other parts of the leisure and hospitality industry, potentially reducing another 15,000 jobs.

The final employment report from the Biden administration is expected to show that job growth from April 2023 to March 2024 will be slower than previously reported. The government estimated in August that the employment level over the past 12 months would decrease by 818,000 jobs. However, subsequent updates to the original data have led economists to expect that the reduction in jobs will reach between 675,000 and 700,000.

Downward Revision

Employment numbers from April to December may also be revised to reflect new seasonal factors and information. The benchmark revision will also affect average hourly earnings and the workweek. Average hourly earnings are expected to grow by 0.3%, unchanged from December of last year. This will bring the annual wage growth rate down from 3.9% in December of last year to a still stable 3.8%.

Andrew Hesketh, senior U.S. economist at BNP Paribas Securities, stated, "We expect the annual revision to reduce the recent trend growth rate by 35,000, averaging about 70,000 fewer jobs during the period from April 2023 to March 2024." "It may have a greater impact on recent momentum, but given the strong economic growth, we are skeptical about this."

As job growth increasingly concentrates in low-income sectors such as leisure, hospitality, healthcare, and social assistance, some economists argue that the labor market masks what they believe is a white-collar recession occurring. They believe the Federal Reserve should cut interest rates.

Sung Won Sohn, a finance and economics professor at Loyola Marymount University, stated, "Many jobs for the middle and upper-middle class have disappeared." "From the monthly wage data, perhaps the economy is not as strong as people think." "I hope the Federal Reserve can take this into consideration."

Last month, the Federal Reserve kept the benchmark overnight interest rate unchanged in the range of 4.25%-4.50%, having lowered it by 100 basis points since the start of the policy easing cycle in September last year. To curb inflation, the policy rate was raised by 5.25 percentage points in 2022 and 2023. Financial markets expect a rate cut in June.

Increasingly, there are concerns that large-scale evictions and tariffs may reduce labor supply, making businesses reluctant to increase costs by expanding their workforce, thereby hindering the labor market this year. The Trump administration's cuts to federal government jobs are also seen as suppressing job growth. Government employment, including state and local governments, has been a major contributor to job growth.

The January employment report will also include new population control factors for the household survey used to calculate the unemployment rate. The new weights may increase the size of the labor force and raise the number of employed households, which will narrow the gap with non-farm employment figures. Economists believe that the household survey has not captured the surge in immigration, which is why it is inconsistent with the institutional survey results.

The unemployment rate is typically not affected by population controls, but due to this series of data disruptions, the unemployment rate in January will not be directly comparable to December's figures.

Stephen Stanley, Chief U.S. Economist at Santander Bank's U.S. Capital Markets, said, "The underlying pace of job growth is currently around 150,000, and if there are any changes, it should further slow down in early 2025, reflecting both the slowdown in demand for workers due to economic deceleration and the decline in the growth rate of labor supply, as well as tightening immigration policies."

"Given the enormous policy-related uncertainty that businesses face in the short term, they will adopt a conservative approach to investment and hiring in early 2025."