Nonfarm Payrolls: What to Expect
NEW YORK (
) -- The U.S. economy is expected to show a rise in jobs for the first time since May, when the Labor Department issues its monthly report Friday.
Nonfarm payrolls are likely to have increased by 60,000 from the previous month, helped by private sector job growth of 75,000, according to consensus estimates from
Reuters
. The unemployment rate and average workweek is expected to remain steady at 9.6% and 34.2 hours, respectively.
On Wednesday, the
ADP National Employment Report showed a significantly higher than expected growth in private sector jobs. Businesses, chiefly those belonging to the service sector, added 43,000 workers, 20,000 more than consensus was expecting.
The economy shed 95,000 jobs in September, as state and local governments facing steep deficits cut jobs and companies added fewer jobs as the economy decelerated.
The October jobs report Friday follows two key events this week that had important repercussions for the economy and employment. On Wednesday, the
Federal Reserve
announced that it will
purchase $600 billion worth of long-term Treasuries through the second quarter of 2011 to boost the economy. That was just a day after the Republicans took control of the House of Representatives, creating a split Congress and spurring hopes of a more centrist White House.
Those two events might obscure the jobs report on Friday according to Lawrence Creatura of Federated Investors. "The jobs report is likely to be overwhelmed by larger macroeconomic shifts," he said. Creatura says the launch of another round of quantitative easing has resulted in a lot of asset reallocation as investors shift more of their portfolio to equities from bonds.
The movements of the dollar are also likely to play a greater role in how equities behave in the near term than a singular jobs report. Markets were rising on Thursday despite an unfavorable weekly jobless claims report.
The initial unemployment claims for the week ended Oct. 30 rose by 20,000 to 457,000.
Still, the jobs report will be closely followed in the months to come by investors as the political climate changes and most certainly by the
Federal Reserve
.
The slow pace of job creation has been a major source of concern for the central bank as the U.S. economy struggles to make a strong recovery from the great recession. Economists say jobs need to grow at a pace of 100,000 to 120,000 jobs a month just to keep pace with population growth and at more than 200,0000 jobs a month to signal a strong recovery. However, jobs growth has so far been anemic, with unemployment rates remaining stubbornly near the 10% level.
The unsustainably high unemployment rate was one reason the Fed cited for embarking on another round of quantitative easing. But the central bank has indicated that it might scale back its efforts if the economy and jobs show signs of making a more rapid recovery.
Important indicators of a more sustainable revival would be more than anything else a consistent jobs report, according to Daniel Penrod of California Credit League. "Markets hate uncertainty even more than it does bad news. I would argue seeing a growth of 50,000 and then 60,000 and 70,000 in the following months is better than seeing a growth of 200,000 jobs in one month and then a sudden drop to just 20,000 the next," he said.
Another good sign to watch out for in upcoming reports would be job growth across industries. In recent months, the services sector has driven growth while goods producing sectors and construction have continued to see declines. "Having one sector boom while others are stagnant does not move the needle. We need to see more areas picking up a little than one picking up a lot" says Penrod.
Penrod expects jobs to pick up in the next few months as retailers hire more temporary workers in expectations of higher spending during the holiday season.
Retailers will add between 550,000 and 650,000 jobs this holiday season, according to a report from the national outsourcing firm Challenger, Gray and Christmas.
Another element that could provide support to job growth is the changes in the political landscape, according to Creatura. Investors are hoping that Congress would vote on the extension of Bush era tax-cuts as early as in the "lame-duck" session resolving uncertainty for businesses and investors.
In the first sign of the White House moving toward the center after the mid-term elections, President Obama on Thursday
signaled a willingness to discuss the extension of the Bush-era tax cuts in the final days of his Congress' term.
"Forecasting Washington's desire to do the logical thing is a dangerous business. But it appears that there are large incentives for politicians to return to fulfilling their obligations as democratically elected officials," he said, with Congress well aware of people's frustration with the uncertainty on taxes and health care costs.
Just the perception that the political climate is more business friendly may be enough to get businesses to hire again according to the analysts. "Business and consumers are in a staring contest of who will blink first," says Penrod. Consumer spending, which accounts for 70% of the economy, will not pick up until there is job growth. Yet businesses are reluctant to hire unless consumer demand picks up. But Penrod says businesses may be poised to take the lead soon. Latest numbers show an increase in productivity and lower unit costs and with certainty on tax breaks, confidence might begin to pick up.
--Written by Shanthi Venkataraman in New York
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