The Labor Department’s January employment report is likely to provide a solid end-of-week boost for U.S. stocks, which have been clipped by megacap tech declines and tariff uncertainty, with solid job gains and tempered wage growth providing a so-called Goldilocks runway for the world’s largest economy into 2025.
U.S. employers likely added 169,000 new jobs to the economy last month, a marked decline from the 256,000 created in December but in line with the six-month average of around 165,000.
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Economists aren’t anticipating any changes in the headline unemployment rate, which was pegged at 4.1% at the end of last year. And they see wages ticking modestly lower on an annual basis and holding their month-on-month increase at 0.3%.
In other words, it’s what Wall Street calls a Goldilocks reading: It’s not likely to push up Treasury bond yields, which have been in steady retreat for the past week, and it’ll stoke few concerns about wage impacts on the broader inflation narrative.
Amid all the jitters about President Donald Trump’s tariffs, “the January jobs report will likely send a comforting signal about the health of the economy at the start of the year,” EY Senior Economist Lydia Boussour says.
“We expect nonfarm payrolls to increase a solid 190,000 – above consensus expectations for a 170,000 gain but a step down from the robust pace of job creation reported in December.”
Fed Chairman Jerome Powell has said the central bank is in ‘no hurry’ to lower interest rates as inflation remains north of its elusive 2% target.
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Payroll-processing group ADP indicated a similar dynamic with its January employment report, published Wednesday. The data showed solid private sector hiring and appeared to show little impact from the California wildfires or the cold snap that engulfed the southeastern U.S.
Challenger Gray’s closely watched report on corporate layoffs, meanwhile, indicated the lowest number of January job cuts in three years.
Fed seen holding rates steady
“The economy is kicking off 2025 in good shape. Businesses’ hiring intentions are firming, and the latest hiring data in hand shows them following through with action,” said Bill Adams, chief economist for Comerica Bank in Dallas.
“ADP’s data suggest that the Fed will be able to maintain their focus on controlling inflation near term,” he added. “This bolsters confidence that the Fed will hold interest rates steady at their next few decisions.”
CME Group’s FedWatch tool, a real-time tracker of market expectations for Fed rate cuts, pegs the first rate cut of the year in June, with odds of a follow-on move in either October or December essentially a coin flip.
“As long as Friday’s jobs report shows that the economy added 170,000-200,000 jobs during the month, the market should largely absorb this number with little volatility,” said Gaurav Mallik, chief investment officer at Pallas Capital Advisors in Braintree, Mass.
Related: Inflation report upends Fed interest rate cut bets in 2025
“If we see a number much stronger than this, it could remove the prospects of any rate cuts this year. And if it’s a number much lower, it could raise worries about a weakening labor market,” he added.
An in-line reading should bode well for U.S. stocks, which have given back some of their January gains amid a pullback in tech stocks tied to concern about the size and pace of AI investments and the uncertainty linked to Trump’s tax, tariff and immigration plans.
The S&P 500 remains around 2.6% higher on the year, but it’s down 0.04% on the month amid the megacap tech declines and the broader tariff downdraft.
A further retreat in Treasury yields, however, could take stocks another leg higher into Nvidia’s (NVDA) ‘s fourth-quarter earnings later this month.
Labor market weakness in sight
Samuel Tombs, chief U.S economist at Pantheon Macroeconomics, is one who sees the potential for a lower-than-expected tally of around 125,000 in the January report. He cites the extreme cold weather that gripped the eastern and southern U.S. during the middle of the month.
“Temperatures have been higher than normal in all seven Januarys in the last eight years when payrolls surged,” Tombs noted. “Conversely, cold snaps in 2009, 2015 and 2016 coincided with subpar payroll growth.”
Related: Inflation, debt limits reset bond market risks
There are definitely signs of slowing momentum in the job market to note. The Labor Department’s Job Openings and Labor Turnover update, better known as the Jolts report, showed job openings fell 556,000 to a fewer-than-expected 7.6 million over the final month of the year.
Challenger Gray also noted thatwhile the January layoff tally was largely benign, “we’ve already seen major announcements in the early days of February, so it seems this quiet is unlikely to last.”
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The January report is also slated to include revisions based on changes in the way the Bureau of Labor Statistics calculates job tallies based on the creation of new firms and the collapsing of older ones.
Revisions of job growth since last March, meanwhile, are also expected as the overall count is reset using Unemployment Insurance records, which require matching social security numbers.
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