It’s hard to overstate the importance of the October jobs report.
With the FOMC getting closer to announcing the first move to taper down the Federal Reserve’s quantitative easing program (QE3), markets are hinging on economic data releases that would push them closer or further from such a decision, and the monthly jobs report is king among those releases.
This one will be tainted by the government shutdown that spanned the first two weeks of October. The shutdown caused some problems with data collection, which means the numbers will be skewed.
Specifically, the unemployment rate is expected to tick up to 7.3% from 7.2%, and some economists predict it will go as high as 7.6%.
This is NOT indicative of actual job losses, but rather a reflection of the way data for the “household survey” — the one that determines the unemployment rate — are collected. Workers who were furloughed for the government shutdown during the survey period are counted as unemployed in the household survey, even though they received back-pay for their time off during the shutdown and went back to work as soon as it ended.
The “establishment survey,” on the other hand — the one that contains the payrolls figures that markets like to pay attention to — will be relatively unaffected. The only way the shutdown will have affected those numbers is if private-sector government contractors laid off employees in response.
Below are consensus expectations for each datapoint:
- Change in nonfarm payrolls: +120,000, down from +148,000 in September
- Change in private payrolls: +125,000, down from +126,000 in September
- Change in manufacturing payrolls: +5,000, up from +2,000 in September
- Unemployment rate: 7.3%, up from 7.2% in September
- Average hourly earnings: +0.2% month over month and +2.3% year over year, up from +0.1% and +2.1%, respectively in September
- Average weekly hours worked: 34.5, unchanged from September
How is the report expected to move the market?
Citi’s Steven Englander, BofA Merrill Lynch’s Priya Misra, Deutsche Bank’s Alan Ruskin, Société Générale’s Sebastien Galy, TD Securities’ Gennadiy Goldberg, and ED&F Man Capital’s Tom di Galoma all weigh in on that question here.
In short, the strategists think a nonfarm payrolls number in excess of around 150,000 should cause some fireworks, because it suggests that the economy shrugged off the shutdown in October, which may help give the FOMC the “all-clear” for announcing tapering in the next few meetings.
What do previously-released survey data have to say about the state of the American labour market in October?
Here are the big three:
- ADP’s October National Employment Report estimated 130,000 workers were added to private payrolls last month, below a downward-revised 145,000 in September.
- The employment sub-index of ISM’s monthly manufacturing report fell to 53.2 in October from 55.4 in September, suggesting a deceleration in hiring in the American manufacturing sector last month.
- The employment sub-index of ISM’s monthly non-manufacturing report rose to 56.2 in October from September’s 52.7 reading, suggesting an acceleration in the pace of hiring in the American services sector.
Finally, one thing to note: there has been growing concern about the seasonal adjustments the Bureau of Labour Statistics is using to compute the data.
In a nutshell, the timing of the financial crisis and attendant job losses in 2008 is causing seasonal adjustments to overstate the jobs numbers during certain parts of the year and understate them during other parts of the year.
In the past few months, seasonally-adjusted jobs numbers have shown a deterioration in job growth.
But take a look at this chart of the year-over-year change in the unadjusted data: it shows fairly steady year-over-year gains of 1.6-1.7% in each of the last 18 months.
The jobs report is due out Friday morning at 8:30 AM ET. Follow the release LIVE on Business Insider »