Friday’s jobs report represents yet another opportunity for the long-awaited stock market crash to manifest itself in a key economic data release. Indeed, the October jobs report is expected to offer economists some well-needed insight into the state of the economy as recession concerns continue to circulate.
Setting Expectations
This time around, 3.8% unemployment is the number to beat. Indeed, this is the jobless figure recorded in September, as well as the current forecast for October.
If unemployment manages to dip below 3.8%, economists will take it as a sign that the economy is still continuing to hold strong even despite the Federal Reserve’s aggressive rate hike campaign over the past year and a half or so. This would likely support the view that the Fed may, in fact, manage to execute a “soft landing,” that is, lowering inflation via hawkish monetary policy — without incurring a malicious economic pullback.
On the flip side, a deterioration in unemployment would suggest the opposite — that the U.S. is in the midst of a descent into recession, or at the very least, a notable economic decline.
If you recall, last month’s jobs report came back stronger than expected. Nonfarm payroll employment increased by 336,000 in September, well above the 267,000 average over the prior year and nearly double the Dow Jones consensus estimate for 170,000. Jobs were largely bolstered by the Leisure and Hospitality, and Government employment sectors.
“Job cut plans have slowed significantly since the first half of the year, and consumers have continued to spend, even in the face of high inflation,” said Andy Challenger, senior vice president of Challenger, Gray & Christmas. “Pandemic savings and higher wages have got many workers through economic uncertainty.”
October Jobs Report Looms Large Amid Fears of a Stock Market Crash
The more immediate concern surrounding tomorrow’s jobs report is the implications it will have on the stock market. Indeed, economic reports have moved markets, in some cases, even more than earnings.
Since mid-July, stocks have been on a downward trend, in large part because of the fear of an impending economic collapse. Economists have frequently cited the second half of 2023 as the “beginning” of a Fed-induced recession. As such, traders have been showing particular sensitivity to any and every economic data release since July.
The S&P 500 has slipped almost 7% since July 31. Interestingly, this is a notable improvement from just last Friday, when the S&P was down more than 10% at its trough. Stocks are beginning to enjoy some momentum as traders speculate the Fed may opt not to raise interest rates again this cycle.
A Surprise Halt in Interest Rate Hikes
Indeed, at today’s rate-hike decision, the Fed surprised some traders with news that it has opted to hold the Fed Funds rate steady at between 5.25%-5.5%. Whether this really does represent the conclusion of the Fed’s rate hikes this cycle remains to be seen. In that regard, tomorrow’s jobs report may prove crucial.
Should the labor market prove too hot in tomorrow’s report, the Fed may read it as a sign the economy needs a stricter monetary environment to properly lower inflation to its 2% goal, possibly encouraging additional rate hikes. On the flip side, if unemployment rises, the Fed may view this as evidence that its rate hikes are having an appropriate effect, nudging the central bank away from additional policy changes.
On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
