TD Securities expects January US nonfarm payrolls to rise by 45k, below the 70k consensus. The unemployment rate is forecast to stay at 4.4%, with a hawkish risk if it falls to 4.3% rather than rising to 4.5%.
Private payrolls are projected to increase by 40k, with stronger gains in healthcare and construction. Government payrolls are expected to rise by 5k.
Unemployment Rate In Focus
The unemployment rate is expected to be unchanged at 4.4%, with added uncertainty from a BLS population adjustment that is expected to be negative. TD Securities links labour market stabilisation to the pause in rate cuts at the January FOMC meeting.
The note also points to curve dynamics, expecting a bear flattening and more market focus on the unemployment rate; a 10-year auction is scheduled for the afternoon. It also flags lower continuing claims as a factor behind the 4.3% risk.
December retail sales were flat versus expectations of 0.4% m/m, while TD forecast -0.2%. The control group fell 0.1% versus forecasts of +0.4% and TD’s +0.1%, and November was revised to 0.2% from 0.4%, trimming TD’s Q4 GDP tracking to 2.6% q/q annualised.
We are bracing for a weak January Nonfarm Payrolls report, with expectations for only 45,000 new jobs against a consensus of 70,000. This slowdown is consistent with the surprisingly flat retail sales data we saw at the end of 2025, which pointed to a cooling consumer. This reinforces the view that the economic momentum from last year is fading.
The critical number to watch, however, is the unemployment rate, which we expect to hold at 4.4%. There is a tangible risk it could dip to 4.3%, which would signal a still-tight labor market to the Federal Reserve and complicate any plans for rate cuts. This tension between slowing job growth and low unemployment could lead to a bear flattening in the yield curve, where short-term rates remain stubbornly high.
Trading And Hedging Considerations
Looking back, we saw a pattern in 2025 where initial weak payroll prints were often revised significantly higher in subsequent months, suggesting underlying resilience. With the latest January CPI data showing core inflation still sticky at 3.1%, the Fed has little room to act pre-emptively. This backdrop makes a surprise beat on jobs a more significant market mover than a miss.
For traders, this mixed outlook suggests using options to manage risk around the payrolls release. A long straddle on short-term interest rate futures could be a prudent way to position for a larger-than-expected move, regardless of the direction. Given the uncertainty, paying a premium for options may be preferable to taking an outright directional bet on yields.
The continued weakness in the consumer sector, evidenced by the contraction in the retail control group late last year, warrants attention. Traders should monitor derivatives tied to the consumer discretionary sector, such as options on the XLY ETF. Any further signs of consumer fatigue in upcoming data could make protective puts on this sector an attractive hedge in the weeks ahead.
