Non-Farm Payrolls Preview: January Expected to Surprise with Only 70,000 Jobs Added, Wages Cool Down Sparks Rate Cut Expectations

The U.S. Bureau of Labor Statistics will release the delayed January non-farm payrolls data later on Wednesday evening. Investors expect that, following a 50,000 increase in December non-farm employment, January will see a gain of 70,000 jobs. The unemployment rate is expected to remain steady at 4.4%, while the year-over-year growth rate of average hourly earnings is forecasted to slow from 3.8% to 3.6%. TD Securities analysts are more cautious, predicting only a 45,000 increase in employment for January.

January Non-Farm Payrolls Could Surprise to the Downside: Investors Expect Only 70,000 Jobs Added

The U.S. Bureau of Labor Statistics (BLS) will release the delayed January non-farm employment data at 13:30 GMT on Wednesday. The employment report could increase volatility in the dollar, as investors seek new insights into the Federal Reserve’s future interest rate path. Last week, the BLS announced that due to a partial government shutdown, the official employment report scheduled for Friday would be postponed. On Tuesday, the House of Representatives passed a bill to end the shutdown, and the agency announced it will release labor market data on Wednesday, February 11.

Investors expect that, following a 50,000 increase in December non-farm employment, January will see a rise of 70,000 jobs. During this period, the unemployment rate is expected to stay at 4.4%, while the annual wage inflation rate measured by average hourly earnings is forecasted to slow from 3.8% to 3.6%. The market consensus of 70,000 is already very low, well below the pre-pandemic normal of 180,000, but some institutions are even more pessimistic.

TD Securities analysts, when forecasting the employment report, expect moderate growth, with only a 45,000-job increase. “We expect the private sector to add 40,000 jobs, and the government sector to add 5,000 jobs. We anticipate private sector growth will be mainly concentrated in healthcare and construction. We expect the unemployment rate to remain stable at 4.4%. The labor market still shows low layoffs and low hiring rates. Average hourly earnings could increase by 0.3% month-over-month, and 3.3% year-over-year.”

Three Expectations for the Non-Farm Payrolls Report

Market consensus: 70,000 jobs added, unemployment rate 4.4%, annual wage growth 3.6%

TD Securities: only 45,000 jobs added, annual wage growth 3.3% (more pessimistic)

White House: Hassett says low employment figures shouldn’t cause panic; productivity gains are key

Although the difference between 45,000 and 70,000 may seem small, in the current sensitive market environment, if actual data approaches 45,000, it could be interpreted as a sign of a significant economic slowdown, triggering market turbulence. Conversely, if the number exceeds expectations and reaches over 100,000, it could reignite inflation concerns and dampen rate cut expectations.

Warsh Nomination and the Dollar’s Strength: The Logic

The dollar has strengthened this month, driven by market optimism over Kevin Warsh’s nomination as the new Federal Reserve Chair. Warsh previously served as a Fed governor from 2006 to 2011. Additionally, increased volatility in precious metals (especially silver and gold) and equities has also supported the dollar. Consequently, the dollar index, which measures the dollar against a basket of six major currencies, rose by 0.5% in the first week of February.

The logic behind the dollar’s rally on Warsh’s nomination seems contradictory. Markets generally expect Warsh to adopt dovish policies (more rate cuts), which would typically weaken the dollar. So why is the dollar strengthening? Possible explanations include: markets believe Warsh will maintain independence and a hawkish stance for a period to build credibility, Warsh’s nomination itself signals increased policy certainty (ending the long-standing conflict between Trump and Powell), or it’s simply a technical rebound (the dollar corrected after hitting multi-year lows in January).

Federal Reserve Governor Lisa Cook recently stated that last year’s rate cuts will continue to support the labor market. She further noted that the labor market has stabilized and is roughly in balance, adding that policymakers remain highly attentive to potential rapid changes. Similarly, Governor Philip Jefferson believes the employment market is currently in a low-hiring, low-layoff equilibrium.

The CME FedWatch Tool indicates that the market currently assigns about a 15% probability to a 25 basis point rate cut in March. This very low probability suggests that markets hardly expect a rate cut in March. A more realistic timing for a rate cut might be June (at the first meeting after Warsh’s appointment) or later. This “no rate cut” expectation is negative for risk assets, as the prolonged high-interest-rate environment could last longer than previously anticipated.

Three Data Scenarios and Market Reactions

If the non-farm payrolls data disappoints, with fewer than 30,000 jobs added and an unexpected rise in the unemployment rate, the dollar could weaken, opening the door for euro-dollar gains. Such extremely weak data might trigger recession fears but would also reinforce expectations for rate cuts. For risk assets like Bitcoin, this is a double-edged sword: recession fears are short-term negatives, but rate cut expectations are medium-term positives.

On the other hand, if non-farm payrolls meet or exceed expectations (70,000 or more), it could reaffirm the likelihood of no policy change next month. Market positioning suggests that, under this scenario, the dollar could still rise. Investors will also pay close attention to wage inflation details in the report. If average hourly earnings growth is below expectations, even if employment data aligns with forecasts, the dollar might struggle to strengthen.

Danish bank analysts believe that slowing wage growth could negatively impact consumer spending and pave the way for dovish Fed actions. “The Challenger job cut report showed that layoffs in January exceeded expectations, and December’s JOLTS job openings were 6.5 million (versus a consensus of 7.2 million). As a result, the December ratio of job openings to unemployed persons fell to 0.87. This cooling is generally a good sign of slowing wage growth and could threaten the outlook for private consumption.”

For the crypto market, the impact of non-farm data follows this path: data → Fed policy expectations → dollar trend → risk asset prices. If weak data sparks rate cut expectations, it could initially be negative (recession fears) but later positive (liquidity easing). If data meets expectations, the market may remain range-bound. If data exceeds expectations strongly, it could dampen rate cut hopes and continue to pressure Bitcoin.