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After the summertime walk on the wild side, Wall Street is longing for equilibrium. Friday’s scheduled Labor Department report on job growth in September will be a critical test.
“In the words of Goldilocks, it has to be just right,” said Alexander Paris, investment strategist at Barrington Research.
Investors want it all, though their desires are a bit contradictory: a robust economy and corporate profit growth on the one hand and lower short-term interest rates on the other.
A September jobs number of 100,000, the estimate in a survey by Reuters, would be just right, in the consensus view. Rebounding from a loss of 4,000 jobs in August, a 100,000 increase in payroll jobs would help quash fears of recession but not interfere with hopes for another cut in interest rates by the Federal Reserve.
Forecasters commenting Thursday said there is a chance the number could be higher, say 150,000. The range of 100,000 to 150,000 is the “sweet spot,” said bond market analyst Tony Crescenzi of Miller Tabak in his preview of Friday’s data.
Here’s what to look for in Friday’s jobs report:
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– Analysts will focus on private-sector job growth more than the so-called headline number that comprises public and private job growth. That’s because quirky data in August on government jobs, especially teachers, resulted in the overall job loss in that month.
Analysts expect the government jobs component staged a statistical rebound in September and will look more carefully at private-sector employment for hints about the jobs impact of this summer’s housing and mortgage finance problems.
Forecasters’ bets say the economy created about 50,000 private-sector jobs last month, up from 24,000 in August but down from 120,000 in July.
– Economists have done a poor job of estimating the September payroll growth number in recent years, in part because of uncertainties surrounding hurricanes in the month, not to mention the Sept. 11, 2001, attacks.
The average error in the last 10 years, subtracting the actual number from the consensus estimate, has been 97,000 jobs, according to Stone & McCarthy Research Associates. In general, forecasters are too optimistic.
This year, there were no extraordinary factors, though jobs losses in construction and financial services are expected to be significant.
– Traders fear that a stronger-than-expected jobs report would prompt a swoon in the stock market Friday, as hopes for another Fed rate cut dwindle. But in recent years, the opposite has been the case, according to research by Bespoke Investment Group.
Since the third quarter of 1998, the Standard & Poor’s 500 index has advanced twice as much on days of a strong jobs report than on days of a weaker-than-expected number.
Paris said the Goldilocks theory suggests that a major surprise, either a job gain of more than 200,000 or a second month of job loss, would cause the stock market to lose confidence and sell off.
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