Betting markets see December's nonfarm payrolls coming in much higher than Wall Street economists expect, creating a stark divide between traders betting on strong labor data and forecasts predicting a slowdown in hiring.

In a note shared Thursday, Goldman Sachs economist Ronnie Walker estimated that nonfarm payrolls grew by just 125,000 in December, significantly below the consensus forecasts. The Bureau of Labor Statistics will release the official jobs report Friday at 8:30 a.m. ET.

Betting Markets Signal Optimism

Data from CFTC-regulated betting platform Kalshi paints a far rosier picture of the December jobs market.

Implied odds derived from wagers suggest nonfarm payrolls could climb by 187,000 in December 2024.

As of Thursday afternoon, traders betting on a jobs number above 150,000 had a 70% implied chance of winning, with an even 40% chance assigned to a print over 200,000.

On the flip side, bets against payroll growth exceeding 150,000 offered a payout of $3 for every $1 wagered, while betting on a particularly weak figure — below 100,000 — provided an 11-to-1 payout.

This divergence highlights the potential for traders to profit handsomely if the labor report skews toward a weak payroll number.

Wall Street Predicts A Slower Jobs Market

While betting markets exude confidence in the labor market, Wall Street economists are taking a more cautious stance.

Trading Economics places the consensus estimate at 160,000 jobs, a marked slowdown from November's robust gain of 227,000.

Goldman Sachs' projection of 125,000 jobs would represent a reduction from the three-month average of 174,000.

Goldman also expects the unemployment rate to edge up to 4.3%, slightly above the consensus of 4.2%.

Walker attributed his conservative forecast to several factors, including "middling household employment growth," "more challenging job-finding prospects" and "a rebound in the labor force participation rate."

Goldman also anticipates average hourly earnings to rise just 0.3% month-over-month, leaving annual wage growth at 4.0%.

Seasonal Distortions At Play

Seasonal trends tied to the timing of Thanksgiving and Black Friday may play a significant role in December's payroll data.

Walker highlighted that the late holiday shopping season this year likely weakened November's retail hiring, with some of that hiring activity spilling into December.

Yet, Goldman expects these gains to be more than offset by slower job growth in other sectors.

"We expect deceleration in job growth in non-retail sectors, particularly professional services and construction," Walker said, adding that seasonal distortions could reduce payroll growth by as much as 50,000 jobs.

A Wager On Market Surprise

The chasm between betting odds and Wall Street forecasts suggests that traders are banking on the U.S. economy's resilience amid mounting headwinds.

For investors, a stronger-than-expected payroll report could reignite concerns about inflation, putting further upward pressure on Treasury yields and forcing the Federal Reserve to maintain a hawkish stance on interest rates.

Conversely, a disappointing print could signal a slowdown in economic momentum, potentially easing pressure on the central bank.