USD: Labor signals and CPI risks – Wells Fargo

Wells Fargo’s Economics Group highlights softening US labor demand, with JOLTS openings at their lowest since 2020 and risks that layoffs could rise as firms cut costs. The team expects January Nonfarm Payrolls at 80K and unemployment at 4.4%. For inflation, they forecast core CPI at 0.33% month-on-month and headline CPI at 0.25%, pulling year-over-year rates toward 2.5%.

Labor softness and sticky inflation

"Having already dialed back new hires and with voluntary departures muted, cost-cutting firms may resort to layoffs to reduce headcount. Traditional data sources continue to suggest a low-hire, low-fire environment. These include the JOLTS layoff rate, which remains low at 1.1%, and smoothed initial jobless claims, which are down 2.5% from last year."

"While mass layoffs are not our base case, it is not out of the realm of possibility that claims may have some room to rise alongside deteriorating labor demand."

"We’ve noted that interest rate reductions are likely to encourage an expansion in capital expenditures, ultimately aiding the manufacturing sector. However, January’s turnaround may have been driven by restocking rather than a sustained uptick in demand."

"We expect the core index to increase 0.33% over the month, compared to an average increase of 0.22% during the prior 12 months. While residual seasonality may explain part of the strength, delayed pass-through of tariff costs, businesses restocking inventory and companies testing pricing power also reflect the expected rise."

"Headline CPI should increase a softer 0.25%, reflecting weaker food inflation and lower gas prices, though energy services will likely continue climbing. The softer monthly increase in headline inflation should pull the year-over-year rate to 2.4%."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)