US Labor Update

Data Preview & Forecast

• MUFG forecasts February 2026 nonfarm payroll (NFP) growth to be 70k, in line with the median of 65k from Bloomberg contributors, and slightly higher than new breakeven estimate of ~30k.
• The unemployment rate (U/R) is expected to hold steady at 4.4%, consistent with low continuing and initial claims in March. However, the youth U/R will likely continue to normalize (following significant drop in January), posing a risk to unemployment rising to 4.5%.
• Special factors: Expected rebound in health care sector following strikes in February that contributed to negative jobs growth.
• The impact on the labor market from the shock to oil and gasoline prices is expected to be negligible in March given that the reference week is for the week containing the 12th of the month. Economic shocks generally take time to feed into the broader labor market.

Market Thoughts

• Base-case view: We think the last few weeks have cleaned up rate market positioning enough that if our forecasts for the headline number and U/R are realized, there won’t be a violent move up in rates. Yet the initial reaction, given that it is shortened trading day for this release, we could see a bigger bump up. However, markets will move past the otherwise benign data and focus on the war risks. Thus, we would buy the dip if one was presented in this context.
• Upside risk: If we have a stronger headline (100k or above) and the U/R heads lower, the risk is that the first Fed cut gets pushed further in 2027 given the inflationary risks posed by the Middle East crisis.
• Downside risk: An especially weak NFP and higher U/R, which would be 2 months in a row, would bring back multiple cut expectations in 2026 and serve as a reminder that the labor market remains weak.