Payrolls expected to bounce back in September
Any sign of weakness could solidify expectations for another rate cut
By Rex Nutting, MarketWatch
Last Update: 9:00 AM ET Sep 30, 2007
WASHINGTON (MarketWatch) -- The Federal Reserve's next big decision on interest rates is a month away, but we're only five days away from the most important economic data that the Fed will base its decision on.
The report that 4,000 jobs were lost in August went a long way toward justifying the Fed's bold 50-basis point interest rate cut on Sept. 18. Now Fed officials must judge whether further cuts will be needed to keep the economy on its feet.
The jobs data by themselves certainly won't determine the Fed's decision on Oct. 31, but any sign of further weakness would make a rate cut more likely than not.
The September nonfarm payrolls figures will be released on Friday at 8:30 a.m.
Economists expect a decent rebound in job creation to about 115,000, but much of that increase will be seen as more of a payback from the statistical quirks in the August data than of a great leap forward in the labor market. It'd be wise to average the September figure with August's and probably July's as well.
If September's growth is 115,000 (and July and August are unrevised), the three-month average would be about 75,000 per month; still growing, but at only half the rate seen earlier this year. It would be the slowest job growth since 2003, as measured by the monthly survey of some 400,000 business establishments.
Perhaps more important from the Fed's point of view, the unemployment rate is expected to tick up to 4.7% in September from 4.6% in August. It's been close to rounding up to 4.7% in each of the past two months.
While still at a relatively low level, 4.7% would be the highest unemployment rate since August 2006. The unemployment rate is computed from the less-respected and more volatile household employment survey, but it's also a number the average citizen can understand. And it fits very nicely in a front-page headline.
If the jobless rate does rise to 4.7%, that would "suggest further slack [in the economy] and give the Fed more room to ease," wrote Aneta Markowska, an economist for Societe Generale.
Payback
The August jobs report was bad, but it wasn't quite as bad as it looked. Payrolls fell by 4,000, led by a very suspicious 34,000 drop in public education employment, following a drop of 55,000 in July.
Richard Moody, chief economist for Mission Residential, explains: "What looks to be every Republican's dream come true is in reality a statistical fluke, driven in part by later than normal starts to the school year in several states that have thrown a wrench in the seasonal adjustment process."
Manufacturing jobs also fell more than typical in August, even though the factory sector appears to be doing OK, based on other indications.
September's employment report could thus see some payback in both education and manufacturing payrolls, wrote economists for Wachovia, who nonetheless are projecting total payroll gains of just 70,000.
Many economists remain optimistic about employment, based on other data. Jobless claims figures show no increase in the number of people losing their jobs, for instance. Withheld tax receipts are rising at an 8% clip, an indication of labor-market strength, said Steve Wieting, an economist for Citi.
Usually, when job growth slows as it has, jobless claims would rise to 375,000, about 60,000 more than we've seen in recent weeks, said Markowska. One possible explanation for the divergence between claims and payrolls is that companies aren't laying off workers, but aren't hiring either.
"In this environment, businesses could be holding off on any serious expansion plans," Markowska wrote. "But fundamentally, businesses are healthy and have no need for restructuring, hence layoffs remain low."
If businesses are just being cautious, then hiring could resume quickly if business confidence turns around. Businesses still have plenty of funds available to invest, both internally and through the markets.
Falling labor force
The worst part of the August report was likely the 340,000 decline in the number of people in the labor force. While the monthly labor-force number is highly volatile, the view over the past 12 months shows a marked slowdown in the labor force, the slowest in about three years.
The employment report will also include an estimate for the annual benchmark revision to the establishment survey, which is likely to show slower payroll growth than previously reported.
The slowdown in hiring over the past six months is much more evident in the household survey than in the establishment survey. In the household survey, the number of jobs has fallen by 125,000, but in the establishment survey, jobs have risen by 618,000.
Many economists believe the establishment survey overstates job growth near economic turning points, because it includes jobs that the government believes were created by new firms. In normal times, that assumption in the "birth-death model" makes the monthly payroll statistics more accurate.
But when the economy is slowing, new firms won't hire as much. However, the government data will still count those estimated jobs until the annual benchmark survey brings the data back in line with actual reports to state unemployment offices. Many economists think that's what's happened in the past six months, and they expect the benchmark revision will show lower payroll levels for the past year.
Rex Nutting is Washington bureau chief of MarketWatch.
Visit DiversityJobs.com for information on Diversity in the workplace
By Rex Nutting, MarketWatch
Last Update: 9:00 AM ET Sep 30, 2007
WASHINGTON (MarketWatch) -- The Federal Reserve's next big decision on interest rates is a month away, but we're only five days away from the most important economic data that the Fed will base its decision on.
The report that 4,000 jobs were lost in August went a long way toward justifying the Fed's bold 50-basis point interest rate cut on Sept. 18. Now Fed officials must judge whether further cuts will be needed to keep the economy on its feet.
The jobs data by themselves certainly won't determine the Fed's decision on Oct. 31, but any sign of further weakness would make a rate cut more likely than not.
The September nonfarm payrolls figures will be released on Friday at 8:30 a.m.
Economists expect a decent rebound in job creation to about 115,000, but much of that increase will be seen as more of a payback from the statistical quirks in the August data than of a great leap forward in the labor market. It'd be wise to average the September figure with August's and probably July's as well.
If September's growth is 115,000 (and July and August are unrevised), the three-month average would be about 75,000 per month; still growing, but at only half the rate seen earlier this year. It would be the slowest job growth since 2003, as measured by the monthly survey of some 400,000 business establishments.
Perhaps more important from the Fed's point of view, the unemployment rate is expected to tick up to 4.7% in September from 4.6% in August. It's been close to rounding up to 4.7% in each of the past two months.
While still at a relatively low level, 4.7% would be the highest unemployment rate since August 2006. The unemployment rate is computed from the less-respected and more volatile household employment survey, but it's also a number the average citizen can understand. And it fits very nicely in a front-page headline.
If the jobless rate does rise to 4.7%, that would "suggest further slack [in the economy] and give the Fed more room to ease," wrote Aneta Markowska, an economist for Societe Generale.
Payback
The August jobs report was bad, but it wasn't quite as bad as it looked. Payrolls fell by 4,000, led by a very suspicious 34,000 drop in public education employment, following a drop of 55,000 in July.
Richard Moody, chief economist for Mission Residential, explains: "What looks to be every Republican's dream come true is in reality a statistical fluke, driven in part by later than normal starts to the school year in several states that have thrown a wrench in the seasonal adjustment process."
Manufacturing jobs also fell more than typical in August, even though the factory sector appears to be doing OK, based on other indications.
September's employment report could thus see some payback in both education and manufacturing payrolls, wrote economists for Wachovia, who nonetheless are projecting total payroll gains of just 70,000.
Many economists remain optimistic about employment, based on other data. Jobless claims figures show no increase in the number of people losing their jobs, for instance. Withheld tax receipts are rising at an 8% clip, an indication of labor-market strength, said Steve Wieting, an economist for Citi.
Usually, when job growth slows as it has, jobless claims would rise to 375,000, about 60,000 more than we've seen in recent weeks, said Markowska. One possible explanation for the divergence between claims and payrolls is that companies aren't laying off workers, but aren't hiring either.
"In this environment, businesses could be holding off on any serious expansion plans," Markowska wrote. "But fundamentally, businesses are healthy and have no need for restructuring, hence layoffs remain low."
If businesses are just being cautious, then hiring could resume quickly if business confidence turns around. Businesses still have plenty of funds available to invest, both internally and through the markets.
Falling labor force
The worst part of the August report was likely the 340,000 decline in the number of people in the labor force. While the monthly labor-force number is highly volatile, the view over the past 12 months shows a marked slowdown in the labor force, the slowest in about three years.
The employment report will also include an estimate for the annual benchmark revision to the establishment survey, which is likely to show slower payroll growth than previously reported.
The slowdown in hiring over the past six months is much more evident in the household survey than in the establishment survey. In the household survey, the number of jobs has fallen by 125,000, but in the establishment survey, jobs have risen by 618,000.
Many economists believe the establishment survey overstates job growth near economic turning points, because it includes jobs that the government believes were created by new firms. In normal times, that assumption in the "birth-death model" makes the monthly payroll statistics more accurate.
But when the economy is slowing, new firms won't hire as much. However, the government data will still count those estimated jobs until the annual benchmark survey brings the data back in line with actual reports to state unemployment offices. Many economists think that's what's happened in the past six months, and they expect the benchmark revision will show lower payroll levels for the past year.
Rex Nutting is Washington bureau chief of MarketWatch.
Visit DiversityJobs.com for information on Diversity in the workplace
Labels: employment, employment data
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