The stock market may remain in a range this week, as consensus estimates do not look for a break-out print by key US economic data -- although they are expected to be mostly on the soft side. Uncertainty about the the consequences of the US-Israeli attack on Iran could weigh on the market, However, Trump's having said the Iranians want to "talk" and that he expects the fighting to last a month or less, a sell-off could be a buying opportunity.
The Mfg ISM is expected to dip to 52.3 in February from 52.6 in January. This print still would signal moderate manufacturing growth.
The February Employment Report is expected to show modest job gains and a steady Unemployment Rate. Consensus looks for a slowdown in Nonfarm Payrolls to +60k m/m from +130k in January, consistent with the implication of Continuing Claims (see table below). Both months' job gains would be well above the +15k m/m average in 2025, although they would be considered weak from a longer time-frame perspective. A continued stronger pace than 2025's may be considered a positive by the stock market -- relief about the impact of AI even though it would argue against Fed easing.
The best way to judge the strength or weakness of job gains is in terms of the Unemployment Rate, as long as the latter is near full employment. Job growth should be seen as adequate if the Unemployment Rate is steady. Another way of saying this is that job growth would equal Labor Force growth. With the Unemployment Rate having risen 0.3% pt to 4.4% over 2025, the job gains then were weak. In contrast, the jobs gain in January 2026 should be viewed as strong since the Unemployment Rate fell 0.1percentage point to 4.3%. Consensus looks for a steady 4.3% Rate in February.
Weak job growth could be indicative of sluggish GDP growth. However, this is not necessarily the case. Strong productivity growth could substitute for job growth to achieve strong GDP growth. Market discussions regarding the impact of AI on the labor market reflects this possible substitution. However, if AI is behind higher productivity and weaker job growth, then a higher Unemployment Rate should be seen, as well.
To be sure, productivity growth has been strong and is expected to have continued in Q425. Consensus looks for Q425 Nonfarm Productivity to increase 4.8% (q/q, saar), essentially the same as the 4.9% in Q325. However, this estimate looks too high, and a print near the 2.0% recent trend seems more likely. This trend, to be sure, is above trends of 1.0-1.5% seen in the past and is the reason the Fed raised its estimate of potential GDP growth recently.
The slowdown in population growth stemming from fewer immigrants works against strong potential GDP growth. The latter is the sum of labor force and productivity growth. However, what is more important than overall GDP growth is per capita GDP growth. The latter is what determines the standard of living. It could rise even if overall GDP growth is modest. Productivity growth plays a major role in it. Slower economic growth per se would not hurt the standard of living if the slowdown matches that of population.
This week's data will include evidence on wage inflation. Consensus looks for a reversion in Average Hourly Earnings (AHE) to a trend 0.3% m/m, after volatility in December-January (0.1% followed by 0.4%). Consensus also expects a slight 0.2% (q/q, saar) increase in Q425 Unit Labor Costs (ULC). However, this estimate reflects the possibly too-high Productivity estimate. A near-2.0% (q/q, saar) increase in Q425 ULC may be more likely -- not a bad number relative to the Fed's 2% price inflation target.
Private Payrolls (m/m change, 000s)
ADP Estimate First-Print BLS Latest-Print BLS Continuing Claims *
March 155 209 120
April 62 167 133 14
May 37 140 69 -74
Jun -33 74 -27 -57
Jul 104 83 77 18
Aug 54 38 -4 2
Sep -32 119 104 28
Oct 42 na 1 -41
Nov -32 69 41 14
Dec 41 37 48 30
Jan 26 22 172 na 94
Feb 45 ** na na -14
* the inverted change in Continuing Claims between Payroll Survey Weeks, 000s
** Consensus estimate.
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