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

Author: Jin10 Data

The U.S. Bureau of Labor Statistics (BLS) will release the delayed January non-farm payroll report at 21:30 Beijing time on Wednesday, which was postponed due to a brief government shutdown. The report will also include an annual benchmark revision and methodology update.

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

However, several Wall Street economists believe the data will be below expectations. For example, TD Securities forecasts January employment growth to remain subdued, with only a 45,000 increase, aligning with Goldman Sachs’ forecast; on the other hand, Citigroup predicts an increase of 135,000 jobs but states this figure is driven by seasonal distortions, and after reasonable adjustments, employment growth is near zero.

“I think the expectation should be zero,” said Mark Zandi, Chief Economist at Moody’s Analytics. “The 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 could see negative job growth shortly.”

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

Non-farm Benchmark Revision: Likely to Erase Past Gains

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

Last September, the BLS estimated in an initial adjustment that employment over the year ending March 2025 would be 911,000 lower than previously reported, nearly halving the figure. The agency will release the final revision on Wednesday. Market expectations suggest the final number will be lower than the initial estimate but still significant: Goldman Sachs expects a revision between 750,000 and 900,000, while Fed Chair Powell recently indicated 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, resulting in an average monthly increase of less than 40,000 jobs. The Wednesday report will also include the first revision of December 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 leading to a further downward revision of 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 existed.

In summary, the revisions in the January report will point to a labor market that is sluggish, prompting Fed Chair Powell and colleagues to pay more attention when setting the next policy steps.

White House Preemptively “Cools Down”: Low Growth Not Weakness, but the 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 prove to skeptical voters that his policies have genuinely improved the economy.

On Tuesday, Peter Navarro, White House Chief Trade Advisor, told Fox Business that “we need to significantly cut down expectations for monthly employment data.” He pointed out that Trump’s policies have reduced the employment growth needed to achieve and maintain “steady state” in the labor market.

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

The primary factor is government efforts to combat 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 current high GDP growth… If you see a string of numbers below usual levels, don’t panic,” he said Monday. “Because population growth is slowing, and productivity is surging, 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 Deterioration in the Labor Market

Recent signals indicate the labor market is deteriorating.

The BLS data shows that job vacancies in December plunged to their lowest level since September 2020; meanwhile, Challenger, Gray & Christmas reported that January planned layoffs and hiring plans both hit their worst levels since the 2009 global financial crisis; additionally, ADP reported only 22,000 private sector jobs added in January.

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

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

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

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

“Rather than fine-tuning the federal funds rate, I prefer to remain patient, assess recent rate cuts’ effects, 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 stabilized and is roughly in balance, adding that policymakers remain highly attentive to rapid changes. Similarly, Governor Philip Jefferson believes the employment market may be balanced, characterized by low hiring and low firing.

CME Group’s FedWatch tool shows about a 15% chance of a 25 basis point rate cut in March.

Potential Market Reactions

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

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 dovish Fed stance.

They explain, “Challenger Gray & Christmas reports that layoffs in January exceeded expectations, and December job openings were 6.5 million (vs. 7.2 million expected), leading to a ratio of job openings to unemployed of 0.87. This cooling is often a good sign of slowing wage growth, which could raise concerns about private consumption prospects, and under other conditions, supports the case for an earlier Fed rate cut.”

The current calm in markets may be a prelude to a storm. Gold prices paused their two-day rally on Tuesday, but the pullback was mainly a “news-driven” consolidation.

High Ridge Futures metals trading head David Meger notes 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 have strengthened. First, a weak dollar provides support. 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 dollars 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 yields enhance gold’s relative appeal.

Finally, perhaps most importantly, geopolitical tensions continue to drive “safe-haven premiums,” sustaining bullish momentum for gold.