BLS Jobs Report Preview

Jobs Report Preview

The importance of these jobs reports from a Fed policy standpoint is on the rise, and the risk to stocks is for the numbers to run too “hot” and pull forward Fed interest rate increases.

The “Too Hot” Scenario: >300K job gains. A jobs number this strong would likely result in a pulling forward of rate increase expectations, and the markets would react hawkishly: Stocks, bonds and commodities would all decline, the U.S. dollar would continue to rally.

The “Just Right” Scenario: 180K – 290K job gains. This is the “sweet spot” for this report, as it implies a still-healing labor market but not one that’s so strong it would pull forward the date of the first rate hike. A number in this range shouldn’t elicit too much of a market reaction as it’s mostly priced in.

The “Too Cold” Scenario: <180k job gains. Given all the other employment metrics released in October, the chances of this number being a big miss are very remote.

If we get a number below 180K, expect a mildly “dovish” reaction—stocks and the dollar will decline, while bonds and commodities will rally. But, even if this is a big miss, don’t expect markets to move too much as it’ll probably be discounted as a statistical aberration.

Wage Increases and the Unemployment Rate: >2.2% and <5.9% will be taken as “hawkish.”

Given the risk is skewed to the “hawkish” side of things for this meeting, changes in the year-over-year wage gains and unemployment rate are equally as important as the headline jobs number.

An annual wage increase over 2.2% would be considered “hawkish” and elicit a “hawkish” reaction from markets, while a drop in the unemployment rate below 5.9% would also be “hawkish.”

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