January Employment preview: Modest lift to hiring, trend still soft

Summary

• The January jobs report will likely leave the tepid picture of the labor market little changed. We estimate monthly payroll growth picked up to 80K in January. A slower moderation in job postings and a rebound in small business hiring plans indicate some firming in labor demand since the summer. That said, January's pickup is likely to overstate the recent improvement due to fewer layoffs in seasonally-sensitive industries after retailers and delivery firms hired fewer holiday workers last year.
• We expect the unemployment rate to remain unchanged at 4.4% in January but see upside risks to this call. Some mean reversion in the noisier household survey would lead to the number of unemployed rising and the number of employed falling in January. More broadly, signs of the labor market gradually loosening continue to pile up, with the most recent readings on the Conference Board's labor differential and the ratio of job openings per unemployed worker falling to fresh cycle lows.
• We look for average hourly earnings to rise 0.3% in January, which would pull the year-over-year rate down to 3.6%. That would keep earnings outpacing inflation, but not by so much that labor costs would prevent a return to the Fed's 2% target given stronger productivity growth this cycle.

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