This morning's eagerly anticipated
employment report is unlikely to clear the air of the debilitating
uncertainty that has descended in the wake of the Fed's adoption of a bias
towards tightening.
The current consensus calls for the
unemployment rate to remain steady at 4.2%, with average hourly earnings
rising by 0.3% and non-farm payrolls increasing 220,000.
The key figures to watch today will be
average hourly earnings and the unemployment rate. A dip in the
jobless rate, or a higher than expected rise in average hourly earnings,
will be enough to spook an already frightened bond market and send stocks
tumbling. Given the extreme degree of negative sentiment in the bond
market, we would expect bonds to stage a relief rally if the headline
average hourly earnings figure meets expectations of a rise of 0.3%.
While recent economic data has pointed
to an accelerating pace of consumer demand driven economic growth and
increasing labor market tightness, we do not believe today's Hurricane
Floyd skewed employment report will provide an accurate picture of the
strength of the current labor market.
We are looking for non-farm payrolls to
come in below consensus due to the impact of Hurricane Floyd. While
a much lower than expected non farm payroll figure would likely provide
the necessary fuel for a market rally (provided there are no surprises in
average hourly earnings and the unemployment rate), we would be inclined
to regard any such reading as a storm skewed aberration that is unlikely
to decrease the odds of further Fed tightening.
This month's nonfarm payroll figures are
unlikely to be a factor in the Fed's decision making unless they come in
significantly above expectation, at 300,000 or more. Perhaps more
important than this month's numbers will be the revision made to August's
below trend non-farm payrolls.
Unless average hourly earnings come in
above expectations or non-farm payrolls manage to significantly exceed
expectations in the face of the downward skew exerted by last month's
hurricane, today's report is unlikely to provide any concrete answers to
either investors or the Fed.
