"Million-level" downgrade may hit hard, a signal of a bullish rebound in gold?

Non-Farm Payrolls Surprise Warning!

Author: Jin10 Data

The U.S. Bureau of Labor Statistics (BLS) will release the delayed January non-farm employment report on Wednesday at 21:30 Beijing time, due to the recent government shutdown. The report will also include annual benchmark revisions and methodological updates.

Market consensus expectations show: January non-farm job gains of 70,000, compared to 50,000 added in December last year; the unemployment rate is expected to remain at a low 4.4%; average hourly earnings month-over-month growth steady at 0.3%, while year-over-year growth is forecast to decline from 3.8% to 3.6%.

However, several Wall Street economists believe the data will come in below expectations. For example, TD Securities expects January employment growth to remain sluggish, projecting only a 45,000 increase, aligned with Goldman Sachs’ forecast; on the other hand, Citigroup predicts 135,000 new jobs, but notes this figure is driven by seasonal distortions, and “after reasonable adjustments, employment growth is close to zero.”

“I think the expectation should be zero,” said Mark Zandi, Chief Economist at Moody’s Analytics. “Market consensus might be around 50,000. Any figure close to zero indicates how fragile and weak the labor market is. There hasn’t been a wave of layoffs yet, but layoffs will soon increase. I believe we may soon see negative job growth.”

The low forecasts from economists echo a series of unofficial private sector indicators over the past few weeks. Last week’s data showed a sluggish employment situation, rising layoffs, and nearly unchanged new job postings.

Non-Farm Benchmark Revisions: Erasing Past Gains

More challenging is the revision process for non-farm data — a long-standing difficulty for the BLS, which has struggled to obtain timely and relevant data.

Last September, the BLS initially estimated that over the course of a year ending March 2025, employment would be 911,000 lower than previously reported, nearly halving the figure. The agency will release the final revision on Wednesday. Market expectations are that the final number will be lower than the initial estimate but still significant: Goldman Sachs forecasts between 750,000 and 900,000; Fed Chair Powell a few weeks ago suggested the revision could be close to 600,000.

All monthly employment data released so far in 2025 have been revised downward, totaling a reduction of 624,000 jobs, bringing the average monthly increase below 40,000. The Wednesday report will also include the first revision of December’s employment data.

Additionally, the BLS will apply updated business birth-death forecasts and re-estimated seasonal factors for April through December 2025. These adjustments will incorporate the latest data from the Quarterly Census of Employment and Wages (QCEW) and monthly employment surveys, likely reducing the total by another 500,000 to 700,000 jobs.

In other words, over 1 million jobs in the non-farm employment data as of December 2025 may have never actually existed.

In summary, the revisions in the January report will point to a labor market that is stumbling, prompting Fed Chair Powell and colleagues to pay closer attention when setting future policies.

White House Preemptively “Cooling”: Low Growth Not Weakness, But New Normal

This week, White House officials continue efforts to temper market expectations. For President Trump, a bleak employment report could have adverse political consequences, making it harder to convince skeptical voters that his policies have genuinely improved the economy.

White House Chief Trade Advisor Peter Navarro said in an interview with Fox Business on Tuesday, “We need to significantly lower expectations for monthly employment data.” He pointed out that Trump’s policies have reduced the employment growth needed to achieve and sustain a “steady state” in the labor market.

White House National Economic Council Chair Kevin Hassett also stated on Monday that multiple factors are contributing to the low employment growth, at least in the short term.

The most significant factor is the government’s crackdown on illegal immigration. Hassett also mentioned that advances in artificial intelligence have boosted productivity, which suppresses corporate hiring demand.

“I think people should expect employment data to be somewhat lower, which is consistent with the current high GDP growth… If you see a series of numbers below usual, don’t panic,” he said Monday. “Because population growth is slowing, and productivity is soaring, this is an unusual situation.”

Hassett added that a scenario might emerge where “job creation lags, productivity surges, profits soar, and GDP rises sharply.”

Signs of Labor Market Deterioration

Recent signals indicate the labor market is worsening.

Data from the BLS show that job openings in December plunged to their lowest level since September 2020; at the same time, Challenger Gray & Christmas reported that January’s planned layoffs and hiring plans were the worst since the 2009 global financial crisis; additionally, ADP reported that private sector employment increased by only 22,000 in January.

Despite this, some positive signs remain: Homebase data shows small business employment grew by 3.3% last month, better than 3.1% in January 2025 and well above 1.3% in the same period in 2024.

Fed’s Stance: Concerned About Inflation, Not Urgent to Cut Rates

From the Fed’s perspective, policy makers focus on employment trends over a period rather than single-month data. Most officials expect that slower hiring with low layoffs does not indicate a substantial weakening of the economy, but rather a stabilization.

In Tuesday’s remarks, Dallas Fed President Lorie Logan and Cleveland Fed President Beth Hammack both said the U.S. economy is progressing well, but they are more concerned about inflation than unemployment, and question the need for further rate cuts.

“Rather than fine-tuning the federal funds rate, I prefer to remain patient, assess the impact of recent rate cuts, and monitor economic performance,” Hammack said. “Based on my outlook, we may hold steady for quite some time.”

Earlier this month, Fed Governor Lisa Cook stated she believes last year’s rate cuts will continue to support the labor market. She noted that the labor market has become more stable and roughly balanced, and added that policymakers remain highly attentive to rapid changes. Similarly, Governor Philip Jefferson believes the employment market may be in a state of balance, characterized by low hiring and low layoffs.

CME Group’s FedWatch Tool shows that the market currently prices in about a 15% chance of a 25 basis point rate cut in March.

Market Potential Reactions

FXStreet analysts suggest that if non-farm payrolls disappoint, with new jobs below 30,000 and the unemployment rate unexpectedly rising, the dollar could come under immediate pressure. Conversely, if the data meet or exceed expectations, it could reaffirm the Fed’s stance to hold rates steady next month. Market positions indicate the dollar could still rise in that scenario.

Investors will also closely watch the wage inflation component of the report. If average hourly earnings growth is below expectations, even if non-farm payrolls are near market forecasts, the dollar may struggle to gain upward momentum.

Analysts at Danske Bank note that slowing wage growth could negatively impact consumer activity and pave the way for a more cautious Fed approach.

They explain: “Challenger Gray & Christmas reports that layoffs in January exceeded expectations, and December’s job openings were 6.5 million (market forecast: 7.2 million), so the ratio of job openings to unemployed persons fell to 0.87. This cooling often signals a slowdown in wage growth, which could raise concerns about private consumption prospects, and under similar conditions, supports the case for the Fed to cut rates early.”

Currently, the market’s calmness may be a sign of an impending storm. Gold prices paused their two-day rally on Tuesday, but the pullback is largely “event-driven” consolidation.

High Ridge Futures metals trading chief David Meger said that before major economic data releases, this is a natural market reaction. Facing uncertainty, investors tend to lock in profits or temporarily exit, exerting downward pressure on gold prices.

Despite short-term fluctuations, the fundamental factors supporting long-term gold upside remain intact or even strengthen. First, a weak dollar provides support for gold. On Tuesday, due to weak U.S. retail sales data, the dollar index fell to its lowest since January 30. A softer dollar makes gold priced in USD cheaper for overseas buyers, boosting demand.

Second, signals from the bond market are also favorable for gold. On Tuesday, U.S. Treasury yields declined across the board, reflecting growing concerns about economic slowdown and increasing expectations of Fed rate cuts. Falling bond yields enhance gold’s relative appeal.

Finally, perhaps most importantly, geopolitical tensions continue to provide a “safe-haven premium” that sustains bullish momentum for gold.