On Friday, at 8:30 AM ET, the U.S. Bureau of Labor Statistics releases the most important economic data release on the calendar: the November Employment Situation (a.k.a. "the jobs report"), which Wall Street economists believe will show that 185,000 workers were added to nonfarm payrolls last month.
Many believed the October jobs report would be negatively affected by the government shutdown that spanned the first two weeks of the month. Instead, it showed that the economy shrugged off the shutdown, creating 204,000 nonfarm payrolls in October — well above the consensus 120,000 estimate.
The unexpected acceleration in hiring caused a big sell-off in the Treasury market as investors re-calibrated forecasts of when the Federal Reserve is most likely to begin winding down (i.e., taper) its quantitative easing program — the sole consideration dominating markets at the moment.
In recent weeks, we have seen a lot of positive economic data points that seem to confirm that the U.S. economy accelerated in October and November, including various indicators of labor market activity.
Tomorrow's jobs report could be the key confirmation many investors are looking for.
"In our view, the strength in the October employment report put the possibility of a December taper back on the table, after a weak September employment report had dimmed the prospects," says Deutsche Bank chief U.S. economist Joe LaVorgna. "Another month of solid job gains (inclusive of revisions) increases the probability that policymakers will taper when they meet at the December 17-18 FOMC meeting."
Regardless of whether a strong November jobs report will actually spur the Fed to consider tapering QE in December, it's a game of probabilities for market participants, so a big nonfarm payrolls number will force the market to adjust accordingly.
Gennadiy Goldberg, an interest rate strategist at TD Securities, argues that "with the market already pricing in increasing odds of a January taper amid the steadily improving flow of economic data," an above-consensus nonfarm payrolls print in the range of 190,000-225,000 will only spark a "mild sell-off" in the Treasury market.
Indeed, on the back of a sell-off that has gripped the market over the past six weeks, the yield on the 10-year Treasury note is at 2.87% — right where it closed on September 16, when imminent tapering was widely believed to be largely priced into the market.
Below are consensus forecasts for the major components of the November jobs report:
- Change in nonfarm payrolls: 185,000, down from 204,000 in October
- Change in private payrolls: 180,000, down from 212,000 in October
- Change in manufacturing payrolls: 10,000, down from 19,000 in October
- Unemployment rate: 7.2%, down from 7.3% in October
- Average hourly earnings growth: 0.2% from the previous month, up from 0.1% in October
- Average weekly hours worked: 34.5, up from 34.4 in October
Estimates for the crucial, market-moving nonfarm payrolls number range from 115,000 to 230,000, according to a survey of Wall Street economists polled by Bloomberg.
Société Générale economist Brian Jones is usually on the higher end of that range — his forecast has been above consensus every month for the last year.
This time, however, he's slightly bearish — predicting 150,000 — given where the Thanksgiving holiday fell on the calendar this year.
"We have found that the placement of Thanksgiving over the 22-28 November span can provide either a significant lift to or exert a considerable drag on estimated job growth in that month," explains Jones. "Reflecting the early hiring of seasonal holiday workers when the fourth Thursday of the month falls between 22-24 November, the estimated change in payroll employment is on average 57,000 above what the fundamental variables in our model would suggest. The converse is essentially true when Thanksgiving is observed over the 26-28 November period. Indeed, our estimated coefficient – a drag of 45,000 – is almost symmetric."
Perhaps the most interesting forecast is also on the bearish side of the spectrum.
Toby Dayton, CEO of the job listing search engine LinkUp, predicts the nonfarm payrolls number will actually be negative for the first time in over three years.
"With the 6.4% decline we saw in our September LinkUp data, we are anticipating a massive downward revision to a gain of only 65,000 jobs last month,"writes Dayton in a post on the LinkUp blog. "If October’s numbers are as horrible as we believe them to be, we are forecasting that the economy actually lost jobs in November for the first time since September 2010. With the 5.6% decline in new and total job listings in the LinkUp index in October, we predict that the U.S. showed a net loss of 25,000 jobs in November."
Needless to say, that would be quite a surprise.
We will be flooding the zone with jobs report coverage Friday morning. Follow the release LIVE on Business Insider »