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US OUTLOOK/OPINION: Citi Warn Low Churn Labor Market Isn’t A Healthy One

US OUTLOOK/OPINION
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  • Citi estimate nonfarm payrolls growth of 195k in January along with the unemployment rate remaining at 4.1% having been surprised by the strength of recent employment data. “This strength could largely reflect issues of seasonal adjustment that have led to consistently strong January employment data post-pandemic.”
  • “A downside surprise to January employment could be dismissed as the effect of LA fires or cold weather, but we think the impact on payrolls from these factors should be small.”
  • The strength of January data aside, they have not seen much evidence of a change from the recent dynamic of very low hiring & quits along with low layoffs "We continue to think that a low-churn labor market is not a healthy labor market and expect this weakness to become more evident in the spring. We continue to expect 125bp of cuts from the Fed this year.”
  • Benchmark revisions to March 2024 level: “Preliminary estimates from the BLS implied an 818k downward revision to employment as of March, but revisions to Q1 QCEW suggest this could be closer to a still-substantial 700k downward revision in the final benchmarking.”
  • They see AHE growth of 0.4% M/M in Jan after 0.3% in Dec. “Fundamentally, a loosening labor market should continue to imply easing wage pressures this year, with the ECI having slowed to 3.2-3.7% annualized in H2 2024. But average hourly earnings have also exhibited seasonal strength in January, similar to jobs and price inflation data. Wage increases could again be on the stronger side this year, although we do not expect an increase in average hourly earnings as strong as the 0.5% increase last year, implying that the year-on-year rate should fall to 3.8%.”
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  • Citi estimate nonfarm payrolls growth of 195k in January along with the unemployment rate remaining at 4.1% having been surprised by the strength of recent employment data. “This strength could largely reflect issues of seasonal adjustment that have led to consistently strong January employment data post-pandemic.”
  • “A downside surprise to January employment could be dismissed as the effect of LA fires or cold weather, but we think the impact on payrolls from these factors should be small.”
  • The strength of January data aside, they have not seen much evidence of a change from the recent dynamic of very low hiring & quits along with low layoffs "We continue to think that a low-churn labor market is not a healthy labor market and expect this weakness to become more evident in the spring. We continue to expect 125bp of cuts from the Fed this year.”
  • Benchmark revisions to March 2024 level: “Preliminary estimates from the BLS implied an 818k downward revision to employment as of March, but revisions to Q1 QCEW suggest this could be closer to a still-substantial 700k downward revision in the final benchmarking.”
  • They see AHE growth of 0.4% M/M in Jan after 0.3% in Dec. “Fundamentally, a loosening labor market should continue to imply easing wage pressures this year, with the ECI having slowed to 3.2-3.7% annualized in H2 2024. But average hourly earnings have also exhibited seasonal strength in January, similar to jobs and price inflation data. Wage increases could again be on the stronger side this year, although we do not expect an increase in average hourly earnings as strong as the 0.5% increase last year, implying that the year-on-year rate should fall to 3.8%.”