With ADP reporting an increase of 219,000 new jobs in July, it’s a safe bet the official government number will also be strong. The expected number for Friday’s report is now at 193,000 with unemployment remaining within the 3.9%-4.0% range.
The impact of the jobs report has diminished lately as the economy has continually delivered strong results without significant wage growth. As workers’ wages increase, so to do the prices of many common consumer goods which is why wage levels are often indicative of where the inflation rate may be headed. This data carries significance for those currently performing the monumental task of normalizing the current rates while influencing the markets as little as possible.
Some expectations for the pending report suggest modest wage growth with strong job additions, comparable to recent reports. If this is indeed the case, market reaction will likely be minimal. However, should the report deliver news of stronger than anticipated wage growth, we could see a selloff in the markets as investors weigh the possibility of rate hikes beyond the two assumed for the rest of this year. It may also trigger a rally in the treasury markets as less risky assets become more attractive with higher rates.
As with any report, the possibility of increased volatility due to an unexpected announcement exists. It is imperative to use protective stops and practice proper risk management.
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