Nonfarm Payroll (NFP) report: the Nonfarm Payroll (NFP) report is one of the most closely watched economic indicators in the United States, providing insights into the health of the labor market.
Experts have predicted a collapse in the U.S. labor market, especially given the Federal Reserve's aggressive interest rate hikes aimed at controlling high inflation. Despite these challenges, the job market, like the broader economy, remains surprisingly strong, continuing its expansion and becoming one of the longest employment growth cycles in history.
Tonight at 21:30, the U.S. Bureau of Labor Statistics will release the January nonfarm employment report. Overall, economists expect job growth to continue slowing to pre-pandemic levels while remaining relatively robust. According to FactSet, the market widely anticipates a net job growth of around 170,000 for last month, with the unemployment rate expected to hold steady at 4.1%.
However, the resilient labor market seems to be approaching another turning point, facing several obstacles.
“While it may sound cliché, I think the metaphor of the labor market being at a crossroads is quite fitting,” said Oliver Allen, a senior U.S. economist at Pantheon Macroeconomics. “Honestly, we seem to be in a ‘wait-and-see’ mode.”
The resilient job market is contending with a slowdown in hiring, a persistently high interest rate environment, and various comprehensive policy actions from the White House.
One possible scenario for the U.S. economy is a "soft landing," where the Federal Reserve achieves price stability without derailing economic growth. Allen noted that this would involve smooth functioning of the economy, a continued easing of inflation, and minimal negative impacts from other sectors. This would enable the Fed to quickly stimulate the economy by lowering interest rates and keep the labor market moving in a positive direction.
Currently, liquidity in the U.S. labor market continues to tighten. Recent labor mobility data shows that hiring remains sluggish, with employers—especially small businesses—reducing job openings. The Job Openings and Labor Turnover Survey (JOLTS) reported that job vacancies fell from 8.16 million in November to about 7.6 million in December.
The slowdown in job growth primarily stems from tighter hiring practices, while layoffs remain at low levels. A report released Thursday indicated that the number of layoffs announced in January was the lowest since 2022, according to Challenger, Gray & Christmas. The latest Challenger report showed that 49,795 layoffs were announced last month, a 28% increase from December but a 40% decrease from January 2024.
Additionally, the latest data from the U.S. Labor Department indicated that initial jobless claims—an alternative indicator for layoffs—rose to 219,000, still close to pre-pandemic levels.
“January was relatively calm in terms of layoff announcements,” said Andrew Challenger, senior vice president at the firm.
“However, we have already seen significant layoff announcements at the beginning of February, so this calmness is unlikely to persist.”
Despite this, the current pattern of weak hiring and limited layoffs leaves little room for maneuver. If the economy or labor market faces a shock, the buffer for absorbing that shock through reduced hiring is minimal. Allen noted that if the pressure becomes too great, layoffs will become inevitable.
Allen also highlighted that actions from the new administration—whether related to trade, immigration, or federal job cuts—have become one of the largest external uncertainties.
“This puts us in a situation where things could flip quickly, as businesses are hiring as if we're in a recession—even if they aren't laying off workers,” Allen explained. “This is a self-reinforcing dynamic that could lead to a more significant economic slowdown.”
Despite the challenges, there are still strong tailwinds behind the economy and labor market, according to Julia Pollak, chief economist at ZipRecruiter. These factors include real (inflation-adjusted) wage growth for workers, strong corporate earnings, a relatively robust stock market, and the so-called "Trump effect" for some small businesses.
“I’m not sure what specific policies or how the Biden administration has made businesses so dissatisfied, or which tax or labor provisions have led them to be so pessimistic about the economy and growth,” she stated.
“However, every survey shows that businesses are quite optimistic about 2025, and overall, companies expect to increase their workforce in the next six months.”
Yet, she also pointed out that there remains "huge uncertainty."
“This uncertainty has shifted from what (Fed Chair) Powell will do to what Trump will do.”
For example, further restrictions on immigration and deportations could exacerbate labor market tightness, as demand for labor exceeds supply. This, in turn, could stimulate more automation or even reduce production.
“When facing labor shortages, companies typically replace workers with automation,” Pollak noted. “Another possible scenario is that they reduce production. Rising labor costs could lead them to decrease output or shift toward less labor-intensive operations.”
Economists argue that the January employment report is one of the hardest to predict, as it often coincides with a peak in layoffs: companies typically let go of many seasonal workers after the holiday season, while others tighten their budgets at the start of the new year.
Additionally, every January, seasonal adjustments are made to help researchers and economists better filter out seasonal noise—such as adjusting for holiday timing,
weekend counts each month, and the boom and bust periods specific to certain industries—to reveal underlying trends. Seasonal adjustments help smooth out data for a clearer understanding of potential trends.
For example, without seasonal adjustments, it may seem that the U.S. economy experiences severe downturns every January, with millions of jobs lost. These seasonal adjustments are based on years of data and trends; however, the pandemic has significantly disrupted these long-standing processes and created new patterns.
“In recent years, we have seen some upside surprises in January; and in previous years, these surprises have been quite large,” Allen mentioned in an interview. He attributed this partly to the fluctuations in hiring activity post-pandemic. Another critical factor has been the relatively high temperatures and limited snowfall seen in January for the past three years.
“However, this month looks a bit different,” he added. Allen and Pantheon economist Samuel Tombs wrote in an investor report earlier this week that January's job growth may be impacted by a cold wave that swept across much of the U.S. last month. They expect that, due to weather conditions, employment numbers will increase by only 125,000. They noted that during the reference week for the employment report (the week of the 12th), the average temperature was 37.8°F, the lowest level recorded since 2015.
“In the past eight years, the seven Januarys that saw a surge in employment all had temperatures above normal,” they wrote. “In contrast, cold waves in 2009, 2015, and 2016 coincided with weak job growth.”
The January employment report will also include final benchmark revisions, providing a clearer picture of recent job growth and showcasing the size and growth of the U.S. labor market through new population estimates from the Census Bureau.
First, some background: the numbers in Friday's employment report are likely to change in the coming months (and even years). This is inherent in the nature of data collection, statistics, and research: there is a need to understand the current state of the labor market and the broader economy.
Each year, the BLS conducts a comprehensive review of employment estimates based on surveys in its monthly employment report, comparing these estimates to more comprehensive data measured in the Quarterly Census of Employment and Wages (QCEW). This annual process, known as benchmark revision, provides near-complete employment data, allowing the BLS to correct sampling and modeling errors and link these estimates to unemployment insurance tax records. The revision process is conducted in two parts: preliminary estimates are released in mid-August, with final revisions published in February alongside the January employment report.
The preliminary benchmark revision for the 12 months ending in March 2024 indicated a reduction of 818,000 jobs. This accounts for about 0.5% of the U.S. workforce of 161 million.
Under Trump’s administration, the performance of federal statistical agencies will be closely scrutinized. Trump has criticized economic data and sought cuts to government programs.
This annual preliminary release prompted then-presidential candidate Trump to label the employment data as "lies." Although an 818,000 downward revision would be the largest since 2009, there have been other substantial revisions in recent years, including a reduction of 514,000 jobs for the year ending in March 2019 (during Trump’s first term).
Former BLS Commissioner Erica Groshen stated, “Revisions are not mistakes; they are a feature.”
Pantheon economists expect that by Friday, this revision figure will narrow to a reduction of about 670,000 jobs, due to upward adjustments in QCEW data and adjustments to the BLS’s models regarding business openings and closures. The downward revision may also be attributed to a recent surge in immigration.
“Job numbers will be adjusted downward, as many businesses are reluctant to disclose on unemployment insurance forms that they have employed unauthorized immigrants,” the economists wrote. The survey “only asks businesses how many workers they have hired, while unemployment insurance forms require them to provide the name and Social Security number of each employee.”
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