The U.S. Non-Farm Payroll (NFP) report is set to be released on Friday at 12:30 PM GMT. In a note to clients on Tuesday, Citi analysts predicted that the upcoming NFP report will show an addition of 125,000 jobs with the unemployment rate remaining at 4.3%.
Citi analysts stated that “the shift from focusing on inflation to focusing on jobs is now complete,” indicating a change from monitoring inflation indicators to analyzing employment data when assessing Federal Reserve policy.
Citi’s forecasts suggest that a job growth of 125,000, coupled with a 4.3% unemployment rate, could lead the Federal Reserve to implement a 50 basis point interest rate cut. Additionally, the report mentioned that if the unemployment rate drops to 4.2%, the Fed might opt for a smaller 25 basis point cut. However, this would not alter Citi’s outlook that the labor market will continue to weaken alongside a broader economic slowdown.
Citi emphasized that the volatility surrounding the labor market has now become as significant as the inflation data in recent years. The analysts noted that “even minor variations in Friday’s jobs report could significantly impact Fed decisions.”
For example, they believe that if the unemployment rate holds at 4.3% while the data shows a larger job increase of around 175,000, the Fed would likely proceed with a 50 basis point cut. Conversely, if job growth falls below 125,000 and unemployment drops to 4.2%, a larger rate cut might be considered.
Citi’s report also highlighted broader labor market trends indicating increasing weakness, manifested in slower hiring, reduced working hours, and rising unemployment rates. The report noted, “Previous economic cycles have taught us that once this trend begins, it often leads to a U.S. recession.” The report also pointed out that the upcoming jobs data on Friday, along with the JOLTS report due on Wednesday, will be crucial in determining whether this trend continues.
