Here’s all you need to know about the major jobs report. Friday
If present trends continue, a robust labor market might lead to a sluggish stock market.
The nonfarm payrolls data on Friday will be a big litmus test for Wall Street, which has been nervous all week over an unexpectedly resilient labor picture. The risk is that if the tight labor market persists, the Federal Reserve will keep interest rates high, endangering the US economy at a vital juncture.
Dow Jones economists polled forecast a net 170,000 new jobs in September. Significantly more than that might send a shock through an already teetering market.
“The market sees all aspects of the report through the Fed’s eyes,” said Quincy Krosby, chief global strategist at LPL Financial. “Clearly the market is hoping for a headline number that reinforces a labor market that has slowed but remains resilient.”
The Labor Department announced earlier this week that job vacancies increased unexpectedly in August, reaching their highest level since the spring and reversing a previous pattern of reductions. Fed policymakers constantly monitor the measure as a sign of labor market tightness.
Stocks fell on Tuesday after the data, known as the Job Openings and Labor Turnover Survey, causing worry that another drop might be in store if Friday’s tally is equally strong. Treasury yields also reached a 16-year high, showing that investors are concerned about the Fed raising interest rates.
“You get a slew of strong data here, you can very easily put a November rate hike back on the table,” UBS senior economist Jonathan Pingle said Thursday on CNBC. The Federal Open Market Committee (FOMC) is the central bank’s rate-setting committee.
Markets now anticipate little possibility of a Fed action when its next meeting concludes on November 1. According to FedWatch Tool data from the CME Group, there is just a 19.6% likelihood of a rate rise on Thursday afternoon. Even in December, the likelihood is only 32.6%.
That may change with a strong payrolls report, which some on Wall Street are anticipating.
Goldman Sachs, for example, predicts a 200,000-job increase. Citigroup has set a target of 240,000. Private payrolls climbed by just 89,000 in September, according to ADP, albeit that figure sometimes differs dramatically from the Labor Department’s official total.
Indeed, weekly unemployment claims have been moving lower in recent weeks, showing companies’ unwillingness to reduce payrolls.
“When economic visibility becomes more hazy, the first response of an employer is to hire less,” said Peter Boockvar, chief investment officer at Bleakley Advisory Group. “We’ll most likely see more evidence of that [Friday], but employers in the aggregate are not yet looking to trim the size of the workforce, as evidenced by a still-low level of initial claims.”
Markets will also pay careful attention to worker earnings and labor force participation rates.
On the pay front, a 0.3% gain in average hourly wages is expected, up from a 0.1% increase in August. The unemployment rate, which is affected by participation, is forecast to fall to 3.7%.