Key Takeaways

Jefferies stands as the most bullish forecaster for the December Non-Farm Payrolls (NFP) report, projecting a headline gain of 155,000 jobs. Their forecast hinges on a significant calendar quirk related to the end of the November government shutdown, which they argue will artificially boost December's government payrolls by approximately 65,000. The firm also anticipates the unemployment rate falling back to 4.3%, citing a mean reversion in the labor force. However, Jefferies explicitly cautions that the "impressive" headline is a distortion that "grossly overstate[s] the difference in demand for labor," urging traders to look beyond the top-line number.

Deconstructing the Most Bullish NFP Forecast

As the financial world braces for the latest U.S. jobs report, the dispersion of analyst forecasts reveals a wide range of expectations, from a modest 19,000 to a robust 155,000. Occupying the most bullish end of that spectrum is investment bank Jefferies. Their call for 155,000 new non-farm payrolls, coupled with a 90,000 gain in private payrolls and a 4.3% unemployment rate, is a significant outlier demanding scrutiny. Understanding the rationale behind this forecast—and its critical caveats—is essential for traders navigating the potential market volatility surrounding the release.

The Core Argument: A "Calendar Quirk" and Payback Effects

Jefferies frames its bullish projection not as a signal of accelerating labor demand, but as a technical correction from prior distortions. The firm points to two primary factors: payback from October and November's anomalous data and a specific calendar alignment related to the government shutdown.

"We are expecting what will look like a remarkably strong December employment report," Jefferies notes, but immediately qualifies this by stating the impressive headlines are "a consequence of calendar quirks combined with payback effects." This is a crucial distinction. They argue that the underlying trend in labor demand is not as strong as the December headline will suggest.

The Government Shutdown Math: A 65,000 Boost Explained

The most contentious and pivotal part of Jefferies' thesis is a projected 65,000 month-over-month increase in government employment. This seems counterintuitive following a shutdown, but the explanation lies in the methodology of the Establishment Survey.

This survey counts workers who are on payroll and receive pay during the week containing the 12th of the month. For November, that survey week was November 10-16. The government shutdown ended on November 12. As Jefferies outlines, furloughed workers who returned to work on Thursday, November 13, or Friday, November 14, may have worked and received pay for that survey week. However, if their pay period did not align to issue a paycheck within that specific week, they would not have been counted on November's payrolls.

For December, the survey week was December 8-13. All returning government workers would have been squarely on payroll and paid during this period, leading to a significant one-time snapback in the headline count for December that technically belongs to November activity. Jefferies' calculation of ~65,000 attempts to quantify this administrative catch-up.

Unemployment Rate: Forecasting a Mean Reversion

On the unemployment rate, Jefferies employs a mean-reversion argument. They note a large 1.191 million increase in the labor force from August through November, a surge they believe is statistically unlikely to continue. They forecast a decline of about 300,000 in the labor force for December.

Their model suggests that even with modest household employment growth (around +100k), this labor force contraction would lead to a sharp 400,000 drop in the number of unemployed, pushing the unemployment rate down to approximately 4.34%. They stress that the rate decline is more a function of labor force dynamics than explosive job creation in the household survey.

What This Means for Traders

Jefferies' detailed forecast provides a high-impact, low-probability scenario that traders must prepare for. The implications extend across FX, equity, and fixed income markets.

  • Look Beyond the Headline: The paramount lesson is to dissect the report. A headline print near 155k would initially rock markets, likely boosting the U.S. dollar and Treasury yields while pressuring equities on fears of a less dovish Fed. However, if the composition shows a ~65k surge in government jobs and weak private payrolls (Jefferies' 90k forecast is not strong), the initial market reaction could rapidly reverse. Traders should have plans for both the initial headline shock and the subsequent detailed analysis.
  • Focus on Private Payrolls and Revisions: Private payrolls and revisions to previous months will be the true indicators of labor market health. A strong headline driven by government catch-up, paired with weak private gains and negative revisions, would be a net negative signal, potentially validating the Fed's cautious pivot.
  • Watch the Labor Force Participation Rate (LFPR): Jefferies' unemployment rate call hinges on the labor force shrinking. Therefore, the LFPR is a key companion metric. A falling unemployment rate alongside a falling LFPR would be a hollow positive, suggesting workers are leaving the workforce, not finding jobs. This could temper any hawkish market interpretation.
  • Position for Volatility and Asymmetry: The wide forecast range (19k-155k) sets the stage for high volatility. Options strategies that benefit from a large move (like straddles) may be attractive. Given Jefferies' specific thesis, there is also an asymmetric risk: a print significantly below consensus seems more likely if their calendar quirk thesis is flawed, which could lead to a sharp, dovish market rally.

Conclusion: A Forecast Built on Technicalities

Jefferies has presented the most bullish NFP forecast, but it is a bullishness wrapped in a caveat. Their 155k projection is not a vote of confidence in the U.S. economy's momentum; rather, it's a sophisticated prediction of statistical noise. They are forecasting a "remarkably strong" report that they themselves argue will "grossly overstate" the true picture.

For the market, this creates a nuanced trap. A print aligning with Jefferies' view could trigger a knee-jerk, hawkish reaction that may quickly unravel as analysts peel back the layers. The firm has effectively provided the roadmap for that unraveling. The December report, therefore, will be a test of market depth and sophistication. The immediate headline reaction will be powerful, but the sustained move will be dictated by the underlying details Jefferies has so carefully highlighted—the composition of jobs, the labor force dynamics, and the ghosts of the November shutdown. Traders who focus solely on the top-line number from the most bullish forecaster do so at their own peril.