Deutsche Bank Previews Tomorrow's Jobs Report

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It sounds as though Deutsche Bank is (characteristically) at the bullish end of expectations for tomorrow’s big jobs report. Here’s their preview:

Commentary for Friday: By many accounts the August-September timeframe will be a critical period for the labour market. If private sector job creation does not improve (or at least hold-up) in the near term, there will be significant ramifications on the economic horizon ranging from the outcome of the November mid-term elections to the likelihood that the Fed proceeds with an additional dose of quantitative easing. If private-sector hiring appears to be stalling, many forecasters (ourselves included) will likely proceed through another round of forecast downgrades. We are projecting a +40k gain on private sector payrolls,    -115k layoffs of temporary Census workers and a small positive reading on non-Census government payrolls as a payback for apparent seasonal irregularities with respect to education employment in July. This adds up to a -65k decline on headline payrolls. We project the unemployment rate to rise two-tenths to 9.7%. The increase is due to the reinstatement of certain extended benefits programs for the unemployed, which may have shifted individuals from being out of the labour force (i.e. not looking for work) to being part of the labour force but unable to find employment. Individuals are only eligible for unemployment benefits if they are actively seeking work, at which point they are also included in the unemployment rate tally.

Our baseline forecast is for the Fed to remain on hold over the medium term and not engage in further expansion of their security holdings. However, there has been an uneven tone with respect to Fed commentary on additional QE of late. Chairman Bernanke‘s Jackson Hole speech intoned that the Fed had an easing bias in place but stopped short of establishing the general prerequisite conditions for QE2 to begin. Conversely, the minutes of the last Fed meeting exposed greater uncertainty with respect to the likelihood of additional monetary policy accommodation. Specifically, the minutes stated:  “A few members worried that reinvesting principal from agency debt and MBS in Treasury securities could send an inappropriate signal to investors about the Committee’s readiness to resume large-scale asset purchases.” This statement alone casts doubt as to whether the Chairman could build a sufficient consensus for such a move as early as the September 21 Fed meeting. A few participants did not see the recent data as clearly indicating a change in the outlook and policymakers generally viewed the risk of deflation as quite small—in fact, the text explicitly noted: “[N]o member saw an appreciable risk of deflation.” Barring a significantly weaker than expected employment report today, our sense is that the Fed is on hold for now.

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