Friday’s US non-farm payrolls (NFP) report is set to be a key market event, offering fresh insights into the strength of the labor market. Economists forecast a slowdown in job creation, with January’s NFP expected to come in at 170,000, a significant decline from December’s 256,000. If confirmed, this would mark the weakest January jobs report in the post-pandemic era.

Why the Decline? California Wildfires & Hiring Uncertainty

Analysts point to multiple factors behind the slowdown. The wildfires in Los Angeles are expected to have impacted employment, disrupting businesses and leading to temporary job losses. Additionally, some economists suggest that uncertainty surrounding the new administration’s economic policies may have led employers to delay hiring decisions. As data collection for this report took place before President Trump’s inauguration, businesses may have been in a wait-and-see mode before making workforce changes.

Jobless Rate Holding Steady at 4.1%

Despite the expected decline in payroll growth, the unemployment rate is projected to remain at 4.1%, unchanged from December. Since August, the jobless rate has fluctuated between 4.1% and 4.2%, indicating relative stability in the labor market.

Meanwhile, wage growth is expected to remain firm, with average hourly earnings forecast to rise by 0.3% month-over-month, suggesting that workers are still seeing steady pay increases despite slowing job growth.

Tariffs & Employment Risks: A Looming Threat?

Beyond the immediate job numbers, trade tariffs remain a major risk to employment and inflation. In a research note, BMO analysts warned that tariffs could pressure corporate profits and trigger higher unemployment:

“We continue to view the US jobs market as overdue for a correction towards higher unemployment, and a shock to corporate profits from increased trade tensions could be the trigger that has so far been absent. As with inflation pass-through effects, the impact on employment and consumer confidence will not be immediate. However, the fresh wave of uncertainty will cloud the economic and Federal Reserve policy outlooks.”

Bank of America analysts echoed this concern, emphasizing the importance of the Federal Reserve’s response to trade-related risks. They noted that while the Fed may choose to hold interest rates steady throughout the year, any sharp moves in inflation expectations could force rate hikes to curb inflation or cuts to mitigate job market risks.

What to Watch for on Friday

The NFP report is due at 13:30 GMT / 08:30 ET on Friday, and market participants will be closely watching the numbers. A weaker-than-expected report could fuel concerns of an economic slowdown, while a surprise upside could ease fears of a rapid cooling in the labor market. Additionally, wage growth and revisions to previous months’ data will be key in shaping the market reaction.

With ongoing trade uncertainty, Fed policy in focus, and potential labor market shifts, Friday’s data could be a pivotal moment for both markets and policymakers.