Although the monthly jobs report is one of the most influential economic indicators the government releases, Friday's headline number won't paint a true picture of the economy. October's nonfarm payroll number, like September's, will be clouded by the recent hurricanes.
The closely followed
consensus predicts that 120,000 jobs were created last month, following a decline of 35,000 jobs in September. The range of estimates varies greatly, as it did last month, with economist projections spanning from 25,000 jobs lost to as many as 300,000 jobs created. The unemployment rate is expected to hold steady at 5.1%.
Last month, economists dealt with the ramifications of hurricanes Katrina and Rita, which battered the Gulf Coast and left thousands unemployed in Louisiana, Mississippi and elsewhere. In October, Hurricane Wilma destroyed parts of South Florida, and the aftereffects of Katrina and Rita are still influencing the job figures.
Economists say that October's number is almost impossible to predict. Richard Yamarone, director of economic research at Argus Research, is expecting that 120,000 jobs were created, but said it's conceivable that the number could be as high as 250,000.
"In the wake of the hurricanes people hired additional workers, and we are currently hearing stories of worker shortages in the Gulf region," he said. "Due to the hurricanes, you need to throw all of the models away for calculating the payroll numbers and all of the economic indicators because they cannot help you."
The jobs report will arrive at the end of a busy week for traders, who seen have seen strong economic data and a mixed bag of quarterly earnings announcements.
For economic data, the news this week has been pretty positive, says Vincent Ambrose, senior trader at Fox Investments. He also said that recent strength in the dollar shows that there is a flight to the U.S.
"The worst of the inflation numbers are behind us and the selloff in crude has caught people's eye and I wouldn't be surprised if crude was soon trading at $55 a barrel," Ambrose said.
On Monday, the release of the Chicago purchasing managers' index came in at 62.9 for the month of October, up from 60.5 in September. Economists had expected the index to fall to a reading of 57.2.
On Tuesday, the market had to digest the 12th consecutive quarter-point rate hike by
policymakers. The overnight bank lending rate now stands at 4%.
The FOMC repeated familiar comments to the market. "With appropriate monetary action, the upside and downside risk to the attainment of both sustainable growth and price stability should be kept roughly equal," the committee said. "With underlying inflation expected to be contained, the committee believes that policy accommodation can be removed at a pace that is likely to be measured."
Also on Tuesday, the Institute for Supply Management said its manufacturing index declined slightly to 59.1 from 59.4 in September. Economists expected the index to fall to a reading of 57.
Investors also found out this week that October proved to be a difficult month for the automakers.
reported a decline in sales of 26%. Coming in a close second was
who said sales slid 23% for the month. Even
got into the mix with a 3% decline at its U.S. operations.
Thursday was a busy day on the economic front. Weekly first-time jobless claims fell 8,000 to 323,000 for the week ended Oct. 29. Economists expected new claims to rise by just 2,000 to 330,000.
The Institute for Supply Management's services index for October rose to 60 from 53.3 in September. Economists projected an increase to 57. A reading above 50 signals economic growth.
Finally, the Labor Department said productivity for the third quarter jumped 4.1%, well above estimates of a 2.6% increase. Unit labor costs also were stronger than expected, falling by 0.5%.
For Friday's jobs report, the market's initial reaction to the headline number is easier to predict than the actual number.
An overly strong number would most likely lift stock futures higher and push the 10-year Treasury through 4.65%. A number that comes in way below expectations could cause an initial selloff in stock futures and investors would buy Treasuries, pushing the yield back down below 4.6%.