This Friday, the Labor Department releases the November jobs report, and it's expected to show a moderate pace of hiring. Lynn Reaser, chief economist for Point Loma Nazarene University, says "companies are still cautious about taking on new hires. They are still not certain about how strong the economy will be during the next several months."
Even so, the pace of the economy may be sufficiently strong to give the Federal Reserve the leeway it wants to back off some of its extraordinary measures.
While we won't know for certain how the overall picture looks until the report is released at 8:30 a.m. Friday, here's what we are going to be looking at:
- Financial markets' reaction: Generally, investors in the past tended to favor reports seeming to keep the Federal Reserve engaged with a full dose of $85 billion in monthly asset purchases aimed at bolstering the economy. But that may be changing with the apparent inevitability of a Fed downward shift, also known as "tapering" of purchases. Chief Economist Diane Swonk of Mesirow Financial says she thinks "markets could handle tapering more" now than earlier this year.
- Are we back to a time when "good news" is welcomed in the markets? Hugh Johnson, chairman of Hugh Johnson Advisors, thinks so. "Based upon the market reaction to the last stronger-than-expected jobs report, the equity markets are likely to shrug off a stronger-than-expected report," he says. He expects bond prices to decline and interest rates to move higher, and stock prices also to move higher in the event of a strong report. "It is starting to appear as though the equity markets have accepted that tapering and the end of quantitative easing are coming and things are returning to normal. Good numbers are good numbers," Johnson says.
- The Fed's view on the report: The Fed now seems intent on scaling back these asset purchases in the coming months. A stronger jobs report could help tilt the central bank toward stepping away from its extraordinary measures. Swonk thinks actual reduction in asset purchases is weeks (or longer) away. She says that short of "spectacular" employment acceleration, which she puts at 350,000 jobs a month plus revisions, the Fed will wait until January or March for the taper. So, what would the Fed need to see before making a change? "The Federal Reserve will need to see numbers that suggest the economy remains on a relatively firm growth track and that there are prospects for job gains to continue with a slow decline in the unemployment rate," Reaser says.
- Comparison to the last report and changes to previous months: The October jobs report was stronger than expected, with 204,000 jobs added to payrolls, while the unemployment rate stood at 7.3 percent. The report defied forecasts suggesting that the partial government shutdown hurt private employment. But the government sometimes revises one or two months of previous jobs reports while issuing the latest version. Depending on the direction of the revision, the recent jobs picture can look suddenly stronger or weaker. Jeffrey Rosen, chief economist for Briefing.com, isn't looking for big revisions. "It is entirely plausible that the weaknesses in the labor market that was assumed from the government shutdown was overblown and payroll gains are near where they should be. The hard data seems to support that analysis," says Rosen.
- Expectations: Analysts are generally looking for another decent month, assuming close to 200,000 jobs added and the unemployment rate edging down to 7.2 percent. Reaser says the job market "appears to be in a middling recovery." Rosen thinks the "payroll growth in November will look similar to the October report." He's looking for a rise in total payrolls (government and business) of about 185,000 with business alone at 200,000 jobs. Raising hopes for a strong reading, the payroll processing company ADP reports that firms added 215,000 jobs to payrolls in November, the most in a year.
What do you expect the jobs report to say, and what will you be looking for?
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