Distraction, Not Drama in Payrolls

Economists see 190,000 jobs added but caution that things will get worse after the storm.
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Friday's payroll data will be a welcome respite from Katrina-related anxiety on Wall Street, even if the usually explosive number strikes most traders as old news.

The closely followed

Bloomberg

consensus calls for 190,000 new jobs created in August, with economists' forecast falling in a relatively narrow range of 140,000 to 300,000. The unemployment rate is expected to hold steady at 5%.

"Nothing has indicated that job creation in August has been a barn burner," says Richard Yamarone, director of economic research at Argus Research Company. "We are expecting a soft number tomorrow. If you take the average job growth in August for the last three years it is 69,000 new jobs created."

Traders have seen a mixed bag of major economic releases heading into Friday's number.

On Tuesday, the Commerce Department said factory orders were down 1.9% in July, which was the largest decline since April 2004. The consensus was for a decrease of 2%. The Conference Board said the same day that its consumer confidence index rose to 105.6; economists expected the reading to decline to 101 in August from 103.2 in July.

On Wednesday, the Commerce Department revised its opinion of second-quarter GDP growth to 3.3% from the 3.4% first reading last month. Economists expected the reading to remain at 3.4%. Also on Wednesday, the Chicago PMI number came in at a much lower-than-expected 49.2 compared with economists' forecast of 61. Many economists would argue the significant drop was heavily influenced by the auto production cycle.

"You really have to take the weaker-than-expected Chicago number with a grain of salt," says Michael Sheldon, chief market strategist at Spencer Clarke. "The Philly Fed and the New York Empire State Index numbers didn't show the volatility that we saw with the Chicago number. We have to assume a lot of the volatility was due to the auto sector and its downtime."

On Thursday, the Labor Department said new jobless claims increased by 3,000 to 320,000 for the week ended Aug. 26. Economists had expected claims to remain unchanged. The four-week moving average now stands at 316,750.

The Institute for Supply Management said its August manufacturing index fell to 53.6 The consensus was for a rise to 57 in August from a 56.6 reading in July.

With the mixed bag of economic indicators, most economists are not looking for any surprises in tomorrow's number. In any event, all bets are probably off going forward as the storm's impact is felt.

"Even with a solid number, investors will continue to face uncertainty and the fact that economic data for the rest of 2005 will most likely be weaker than what we originally expected," says Sheldon. "Investors will be asking themselves over the next few days and weeks to come will the

Fed

stop tightening; will GDP be severely impacted over the next couple of quarters; and when will the refineries be up and running."

"The news has been trumped by the devastation from the hurricane and, along with bonds closing early tomorrow ahead of the three-day weekend, we might not see the usual market reaction after the number," says Vincent Ambrose, senior trader at Fox Investments. "Most traders are most likely just squaring away positions and looking forward to the economic numbers coming out over the next few months."

A strong number will most likely help to stabilize the equity market in this time of uncertainty and might provide a lift in stock futures. A weaker or soft headline number coupled with the ongoing heart-wrenching news from New Orleans could drive stock futures significantly lower.