"Goldilocks" for nonfarm payrolls! The US labor market is gently recovering, stabilizing expectations of interest rate cuts.

The latest "small non-farm" data shows that U.S. companies resumed recruitment at a moderate pace in December, indicating that the U.S. economy is still resilient as it enters 2026, laying a solid foundation for a "soft landing" for the U.S. economy--- According to Wall Street financial giants such as Goldman Sachs and Morgan Stanley, the macro narrative of a "soft landing" for the U.S. economy is expected to heat up in 2026---that is, the growth rate of the U.S. economy in 2026 is expected to be faster than market expectations. According to the latest U.S. private sector employment data (dubbed "small non-farm") released by ADP Research on Wednesday local time, the overall private sector employment in the U.S. increased by 41,000 in December, after a significant decline the previous month. In contrast, the December "small non-farm" fell short of the more optimistic market consensus, with a survey of economists showing that economists generally expected an increase of about 50,000. The report further confirms that the labor market is showing a slight cooling trend, but it is not rapidly deteriorating or continuing to languish. The recruitment pace in the U.S. labor market has been weak in recent times, and the unemployment rate has also risen, not only dragging down some economists' forecasts for U.S. GDP growth as they enter the new year in 2026, but also affecting Americans' perception of their own job prospects. Overall, this small non-farm report is just right and is what the market most wants to see. It can reflect that the U.S. economy is still resilient, with no negative disturbances to the expectations for a "soft landing" for the U.S. economy, while also not causing a change in the market's expectations for a rate cut by the Federal Reserve---the interest rate futures market is still pricing in the possibility of the Fed cutting rates three times in 2026, higher than the Fed's dot plot showing only one rate cut. The employment trends in the U.S. in December were mainly driven by the education and health services and leisure and hotel industries. Employment in professional services and broad manufacturing categories declined. After months of layoffs, small businesses also resumed relatively active recruitment. "Even as large employers shrink their workforce, small and medium-sized private enterprises have rebounded in overall private sector employment after a temporary wave of unemployment in November," said Nela Richardson, chief economist at ADP and a well-known financial writer, in a statement. The weakening labor market has been a focus of Federal Reserve officials, who announced rate cuts three times at the end of 2025. Fed officials are trying to balance further potential rate cuts in the new year with stubborn inflation data above 2%. Other data released this week will provide reference for their decisions later this month. The most crucial among them is the monthly non-farm employment report to be released by the U.S. government on Friday, which is expected to show moderate hiring in December and a possible slight decrease in the unemployment rate. According to the ADP employment report released in collaboration with the Stanford Digital Economy Lab, after American workers recorded the smallest annual increase since 2021 in the previous month, the overall wage growth in the private sector accelerated in December. In December, wage growth for workers who changed jobs achieved a year-on-year increase of 6.6%, exceeding expectations, while wages for workers who stayed in their original positions increased by 4.4%. ADP's monthly employment statistics are based on wage data for more than 26 million U.S. private sector employees. In addition to the monthly report, ADP also separately releases narrow-range wage statistics on a weekly basis. In the latest three readings, ADP's statistics show positive growth in private sector wage employment. The impact of the "small non-farm" is limited, and the non-farm data on Friday may have a significant impact on the Fed's January monetary policy decision For the expectations of a Fed rate cut and the grand narrative of a soft landing for the U.S. economy, the impact of the ADP "small non-farm" employment data is often very limited. Therefore, the non-farm employment report to be released this Friday is bound to become a key variable in determining the short-term policy path of the Fed. According to the latest report released by a team led by senior analyst Andrew Hollenhorst of the Citigroup research department on Monday, if the U.S. unemployment rate in December rises to 4.7% as expected, the Fed is highly likely to continue to cut its policy rate by 25 basis points this month. Although Fed officials have recently signaled that they are "not in a hurry" to cut rates further, the ongoing weakness in the labor market is changing this expectation. Citigroup believes that after the fatigue revealed in the November data, further softening of the labor market will force decision-makers to reassess their positions. If the unemployment rate continues to rise, it will become inevitable to support the economy through rate cuts. According to the Citigroup analyst team, against the backdrop of weakening in the U.S. labor market and continued mild cooling of inflation, the institution's base forecast for the actual rate cut in the Fed this year is 75 basis points, and it does not rule out the possibility that the Fed may make more than 100 basis points of rate cuts in 2026. The Citigroup analysts stated that based on the trading experience of the past two years, once the labor market significantly weakens, the Fed will resume the rate-cutting process. Although the decision-making process at each meeting is highly dependent on data and difficult to predict, the overall trend is towards easing. Looking beyond monthly data fluctuations, the rising trend in the unemployment rate over the past two years, coupled with the cooling trend in service industry inflation (especially in the housing sector), provides a macroeconomic basis for rate cuts.