US Labor Update

Data Preview & Forecast

• MUFG forecasts January 2026 nonfarm payroll (NFP) growth to be 30k, weaker than the median forecast of 68k from Bloomberg contributors, though not far from the breakeven estimate of ~50k.
• The unemployment rate (U/R) is expected to hold steady at 4.4%, consistent with declining continuing and initial claims leading up to, and including, the January reference week.
• Special factors: Extreme cold weather in the US occurred largely after the January reference week, implying little impact on the data.
• This month’s release will incorporate the annual benchmark revision to QCEW. The preliminary estimate showed a -911k adjustment to the Mar ‘25 level, but we expect the final adjustment to be slightly less extreme, with an adjustment of -700k for the same period.

Market Thoughts

• The rates market is starting to explore a lower level, largely in reaction to a string of weaker than expected labor data. Renewed concerns over the jobs market makes this NFP release even more critical, though much of the negativity may be priced-in. At a minimum, the bar to move rates markets is high.
• Market participants will likely be looking at a combination of factors. The house view leans on the weaker side, and if realized, we believe that rates would rally toward the recent lows, but 3.4% would be resistance. A lot may already be priced in after Hasset’s comments.
• Conversely, if consensus estimates for NFP and the U/R are realized (or come in better), the 2Y could snap back towards 3.5%. Such an outcome would also be viewed favorably by risk assets.