The US non-farm payrolls (NFP) report is always a headline act, and even in mid-December, market sensitivity to this print should be set to high, with traders also focusing on the US CPI report released a couple of days later on 18 December. Both key data points land just after last week’s FOMC meeting, and the more-dovish-than expected 25 bps rate cut, statement and press conference. Indeed, Fed Chair Powell emphasised the more concerning nature of the labour market over current elevated inflation. The dollar will watch on with some trepidation, after dropping to seven-week lows recently.

Consensus expectations

The latest jobs report will provide estimates for both October and November for the establishment survey, but only November for the household survey. Given the impact of the shutdown, there is a high likelihood of a lot of noise in the data, with the long-term trends key. Currently, the labour department is expected to report that the pace of hiring rose in November by 50,000 jobs. This compares with September’s 119,000 which beat estimates handsomely. The projected breakeven rate, that is the number needed to keep the unemployment rate steady and which Fed Chair Powell has commented on, is estimated between 0-50,000.

The unemployment rate is forecast to print at 4.4%, which would be one-tenth below the most recent Fed central economic projection for 2025 year-end. This matches the September print which was a four-year high. Those latest forecasts see the jobless rate easing in the years ahead, before settling at 4.2% in the long-term. Wage growth is also seen steady at 0.3% m/m.

 Employment indicators and other factors

The usual leading metrics for the jobs report have been mixed. The JOLTS report indicated robust labour demand, but details were less rosy, as voluntary quits and hires declined, while involuntary layoffs increased. Softer labour market data was seen on Thursday with a jump in weekly jobless claim from an extremely low 192k to a very high 236k. But this probably was too distorted due to Thanksgiving to provide any additional insight on the status of the US labour market.

Details in the report will again be of interest as over the past few years, economists note that most of the jobs added (circa 90%) have come from just three sectors.  Government, private health and education, and leisure and hospitality jobs are typically not associated with being growth engines of the economy. In fact, if these were stripped out, payrolls would have dropped over the last several months.

Job concerns over warm inflation

While the tariff threat lingers, it is coming through more slowly and less forcibly than feared. But lower energy prices, slowing housing rents and weaker wage growth will likely push inflation closer to the Fed’s 2% target, and perhaps more quickly than the central bank is forecasting. It is then the jobs part of the Fed’s mandate which looks more troubling as Chair Powell noted. He also stated that the Fed thinks job gains have been overstated by up to 60,000 per month. With consensus around a gain of 50k, that points to the economy currently losing jobs.

Money market pricing

Markets are pricing a little over two 25 bps rate cuts in 2026, compared with the Fed’s most recent projection of one rate reduction next year. There’s roughly a 50:50 chance of the next rate cut coming by the March FOMC meeting. The Fed itself sees the Fed Funds rate target falling to 3.25-3.0% in 2027 with the longer run rate at 3%.