Count Down to Friday's Payrolls Report

Carol Massar and Tim Stenovic speak with Bloomberg's Stuart Paul and Alli McCartney of UBS Alignment Partners count down to Friday's payrolls report as traders await data catalysts amid an equity rotation.

As 2025 closed, noise in the jobs and inflation data – mostly due to missed data collection during the government shutdown — clouded the signal. The last nonfarm payrolls data for the year (Fri.) may clear the fog a little, but not by much. Bloomberg Economics expects the unemployment rate to hold stubbornly at 4.6% for December, and nonfarm payrolls – when adjusted for overstatement – to show barely positive net hiring.

In the meantime, wage growth is losing steam. Consumer sentiment (UMich, Fri.) is down. The quits rate has remained low as employees stay in their posts amid job insecurity (JOLTS, Wed.). Weakness in the manufacturing sector (ISM Manufacturing, Mon.) likely persisted.

Still, the broader economy looks surprisingly strong. Fourth-quarter GDP may come in at 1% despite the shutdown, and labor productivity for 3Q (Thurs.) is likely to register a blockbuster 5.4%. That’s largely thanks to AI, with companies managing to produce more output without needing to add more workers.

We think the decoupling between GDP growth and labor-market metrics will persist through 2026. Inflation will come down, and ultimately the Fed will cut rates by 100 basis points in the coming year.

Bloomberg Economics expects December’s nonfarm payrolls to print 80k — an improvement from November’s 64k – but unemployment to remain at 4.6%. What explains the decoupling between the establishment survey and the household survey? On the one hand, hiring is picking up; on the other, the jobless rate won’t budge. We think the key is that labor supply is improving, partly as a result of new work requirements from various social transfers policies under the Trump administration.

These conflicting signals may give a taste of what’s to come in 2026. We expect a revision of the “birth-and-death” methodology will cause a noticeable decline in the monthly payrolls print in the new year. A population-control update that used lagged demographic data will also lead to measurement quirks in the household survey.

The December labor survey will likely show firms continued hiring at a relatively rapid pace into year-end. Most industries reported that business conditions jumped during the month, though some of the more cyclically-sensitive industries softened somewhat. And the pace of hiring was likely tempered by increased trade-policy uncertainty early in the month.

All told, we estimate total employment increased by 30k workers in December. That’s a slower pace of hiring than was registered in each of the last three months. But we think that’s enough to hold the unemployment rate steady at 6.5%, even with a rebound in the labor force after November’s small decline.

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