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January Jobs Report Signals Strong Growth, but Revisions May Shift the Story

Global markets continue to be shaken by U.S. President Donald Trump's trade policy moves, and this week's another key catalyst will be the employment report coming from the U.S. on Friday. Traders will assess whether these reports could alter the Federal Reserve's policy path.


Fed officials met last week for the year's first policy decision and, after three consecutive rate cuts, adopted a "wait and see" approach. The statement maintained the view that labor market conditions remain solid and reiterated that risks to both sides of the Fed's dual mandate are roughly balanced.


Both Fed Chair Jerome Powell and a handful of policymakers emphasized their commitment to refraining from rate cuts unless they see progress toward the inflation target. However, there is one exception to this stance: a weakening labor market.


U.S. Labor Market: Cooling but Resilient


The report released last August showed an unexpected rise in the unemployment rate and a sharp slowdown in payroll growth. This fueled concerns that the U.S. economy could be heading into a recession, prompting the Fed to cut rates by half a percentage point in September to balance risks to the labor market and kick-start an easing cycle.


Over the following months, hurricanes and labor strikes in the U.S. continued to put pressure on the job market. However, as these temporary factors dissipated, the latest data suggested that earlier concerns may have been somewhat exaggerated.


The U.S. labor market is cooling but remains resilient. According to the latest household survey, the unemployment rate stood at 4.1% in December—higher than the 3.7% recorded in the same period a year ago but still below historical averages.


Meanwhile, 2.2 million new jobs were added throughout the year, averaging 182,000 per month. While this marks the lowest annual gain since the pandemic, it remains above the pre-pandemic 2019 average.


In summary, the U.S. labor market continues to gradually cool, but for now, Fed officials prefer to characterize this as normalization rather than deterioration.


January Jobs Report: Growth Continues, but Revisions Loom


The employment report set to be released on Friday is expected to show that the new year started with solid job growth.


According to the median estimate of economists surveyed by Bloomberg, payrolls are projected to have increased by 170,000 in January. This would represent a return to normal levels following gains of 212,000 and 256,000 in the previous two months, which reflected rebounds from hurricanes and strikes. The unemployment rate is expected to remain unchanged at 4.1%.


january-jobs-report-signals-strong-growth-but-revisions-may-shift-the-story

The employment report, published by the U.S. Bureau of Labor Statistics, will also include annual revisions this month. Preliminary estimates released in August had indicated that payroll figures for the year ending in March would be revised down by 818,000. However, the final estimate is now expected to show a smaller downward revision of around 700,000 compared to the preliminary report.


Additionally, the report will incorporate adjustments for business births and deaths from March through the end of the year, which influence payroll revisions. These revisions, including December figures, could result in payrolls being adjusted downward by 234,000, lowering the average monthly job growth for the past year from 182,000 to 148,000.


Ultimately, if the employment figures come in line with expectations, Fed officials are unlikely to change their view that labor demand is moderating but remains strong enough to support the economy.


As long as President Trump's tariff policies continue to send mixed signals and uncertainties over their economic impact persist, the Fed will need to see meaningful labor market deterioration before feeling compelled to cut rates in haste.


On the other hand, if payroll growth slows faster than expected or revisions are deeper than anticipated, market expectations for Fed rate cuts this year could increase, putting additional pressure on the U.S. dollar.


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