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On Monday, Citi analysts shared insights on the recent employment data, which has exhibited surprising strength, particularly in December with strong job growth and a decrease in the unemployment rate. They anticipate the addition of 195,000 payroll jobs and expect the unemployment rate to hold steady at 4.1%.
Despite the robust figures, Citi maintains a cautious outlook for the labor market this year, highlighting downside risks of a slowdown in job growth. The firm points to persistent low-churn dynamics as a reason to believe that the current stability in the labor market may be short-lived. According to the analysts, hiring rates are very low, job postings have plateaued, and mixed employment surveys suggest that new labor demand is limited.
Citi’s analysis also notes that consumer sentiment reflects a perceived difficulty in finding jobs, which aligns with declining quit rates. The analysts argue that while more pronounced weakness in the labor market may not emerge until the spring and summer seasons, when hiring typically accelerates, the risks remain skewed to the downside for employment data in any given month.
Furthermore, Citi analysts project that a clearer picture of slowing inflation will emerge in the coming months. They caution that a slowdown in job growth or an increase in the unemployment rate to 4.3% or higher could lead to a significant reevaluation of potential Federal Reserve rate cuts this year. Citi’s baseline scenario continues to predict a total of 125 basis points in rate cuts by 2025.
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