Will the Jobs Report Show Unexpected Labor Market Weakness?

Economists expect generally good news when the September jobs report lands Friday, but an uptick in layoffs and unemployment applications — not to mention last month’s underwhelming growth — might indicate that the labor market is starting to show some cracks.

Will the Jobs Report Show Unexpected Labor Market Weakness?Accelerating strength in the labor market is a pillar of the hawkish argument for the Federal Reserve to at long last raise interest rates. At least part of the market will take any sign of weakness in the all-important jobs report as a reason for the Fed to push back a rate hike yet again.

That perception, in turn, will only add to market volatility.

Although the trend in the labor market remains positive, it has hit a few speed bumps lately — the August jobs report came in light, for example.

Complicating matters, August payrolls are almost always revised higher — that’s what economists and the market are expecting from tomorrow’s jobs report — but a private reading just threw that move into doubt.

The ADP National Employment Report released last week showed the August figure was actually revised down — to 186,000 from 190,000.

True, ADP’s September reading hit 200,000 new jobs. That level is generally considered to be the dividing line between a healthy labor market and something else, and it was the best rate of job creation in three months.

On average, economists expect September payroll growth of around 200,000, according to a survey by Bloomberg.

Labor Market Blemishes

And yet, other indicators of labor market health aren’t exactly squaring up. Weekly applications for unemployment insurance remain below the key level of 300,000, but the trend since mid-July has been one of incremental gains.

A solid jobs report also provides no solace to the rising ranks of those recently laid off. Indeed, job cuts surged in September, according to Challenger, Gray & Christmas, rising 43% from August to more than 58,000. Year-over-year, announced layoffs nearly doubled.

Major employers letting workers go include Hewlett-Packard (HPQ), which shed 30,000 and Caterpillar (CAT), which cut 5,000 jobs and plans to cut more. ConAgra (CAG) is also letting 1,500 people go.

Bottom Line

For now, the consensus is that the labor market remains healthy and on the cusp of what economists consider to be full employment. Forecasts have unemployment staying at 5.1% for September.

But some of the evidence says a reasonably robust labor market could be losing some steam. If August payrolls aren’t revised upward and the September reading comes up short again, the timing of a rate will once again come under question.

And that’s something an already volatile stock market really doesn’t need.

As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.

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