US Labor Update

Data Preview & Forecast

• MUFG forecasts February 2026 nonfarm payroll (NFP) growth to be 40k, slightly weaker than the median of 55k from Bloomberg contributors, and not far from breakeven estimate of ~50k.
• The unemployment rate (U/R) is expected to hold steady at 4.3%, consistent with low continuing and initial claims in February However, absent a substantial revision to January, the youth U/R will likely rebound, posing a risk to unemployment rising to 4.4%.
• Special factors: Extreme cold weather in the US occurred in the weeks leading up to the February reference week, implying a potential impact on the data for in-person services industries.
• This month’s release will incorporate the annual population adjustments to the household survey, which will bring down level estimates for January 2026, but the impact on ratios is unknown.

Market Thoughts

• Base-case view: After a week of retracing higher in yield and pushing back Fed cut expectations, we think the rates market will see a minor rally if our forecasts for the headline number and U/R are realized. However, if there is also a downward revision to January’s stronger than expected NFP, that will keep US rates in rally mode. And as the day progresses on NFP Friday, the market will move past the data and focus on the developments in the middle east, where it will be hard for market participants to go short into the weekend.
• Upside risk: If we have a stronger headline (closer to 100k) and the U/R heads lower again, making it a trend, the risk is the first Fed cut gets pushed into Q4 (versus the current end of summer pricing).
• Downside risk: We are already below consensus, but if we see a one-off (esp. weather related), market will discount a weak number.