Analysts expect Friday’s employment report to show less than 100k new jobs added in October. The consensus estimate at the moment is 85k new jobs with a slight uptick in the unemployment rate. The uptick in unemployment is no surprise, given the record low 3.5% was reached last month.
This report comes just a few days after the ADP reported 125k jobs added to the private sector in October. While this is a positive number overall, 4000 manufacturing jobs were lost. For a sector which has already taken a hit in recent months, the additional slowdown may lead pundits into a fever pitch over a potential recession. Another concern is the revision of September’s report from the initial 135k additions, down to just 93k.
The ongoing GM strike has led to disagreement among some analysts’ projections for tomorrow’s report. The 46k striking GM employees will count against any growth in payrolls. While many estimates still project 80-90k new jobs were added in October, the Bank of Merrill Lynch is expecting a real number closer to 25k citing direct impact from the GM employees out of work and the reciprocal effect felt by related companies. A number this low would certainly have larger implications on economic outlook.
Tomorrow’s report also follows yesterdays’ Federal Reserve announcement of another rate cut. Although further action is not expected in the coming months, a surprise in tomorrow’s report could potentially change the Fed’s stance especially if upcoming releases were to establish a downward trend.
As it stands, the Fed seems content to let the economy sort itself out. With a large uptick in inflation nearing the 2% target, we may see a tightening of rates. Otherwise it is fair to expect the Fed to remain stagnant with the current target rate.
Average hourly earnings have been a good barometer of the inflation trend historically as it tends to lead to higher prices once workers’ wages increase. Inflation is a lagging indicator so by the time inflation measures 2%, it is safe to assume the real number is slightly higher.
As with any report, the possibility of increased volatility exists in the case of an unexpected announcement. It is imperative to use protective stop orders and employ proper risk management.
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