Today could be one of the most pivotal Fridays, with the highly anticipated Jobs Report set for release later. The recent surge in interest rates and the dollar has added uncertainty to the stock market, making this report particularly significant.

The key question is whether this report will align with the optimism reflected in recent surveys or expose underlying vulnerabilities. To frame this, let’s revisit the current state of the labor market. On a trend basis, the labor market appears to be cooling, with JOLTS and claims data suggesting a “no hiring, no firing” environment. However, there’s no alarming weakness yet.

Mid-last year, concerns peaked as the Sahm Rule was triggered from March to May 2024. Since then, unemployment has decelerated, and recession fears have receded. Pandemic-related disruptions are largely behind us, and payroll growth is nearing the sub-200k range—historically a threshold for a balanced labor market.

The FED’s perception, as clarified by the recent minutes, is that the labor market outlook remains in excellent shape. This significantly raises the bar for how weak payroll numbers need to be for the FED to consider them relevant. Consensus expectations hover at 165k, but we believe this might be slightly low. A figure closer to the whisper number (around 188k) seems more realistic. Additionally, the bar is low for the unemployment rate to tick up to 4.3%, given that last month’s unrounded figure narrowly missed this level. If it does, it likely won’t raise much alarm.

Finally, while the market might initially react to the headline payroll number, revisions to the previous two months’ figures will also be crucial. Weather disruptions and strike-related adjustments could lead to upward revisions, further emphasizing labor market strength. Average Hourly Earnings may emerge as the most critical figure in today’s report.

Chart 1.a: Insights from the Fed’s December Minutes