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It’s time for the monthly jobs report preview, which is worth doing for a few reasons. First, it lets us consider the most important driver of the economy both for history and for the immediate data. Second, it makes us think about our expectations. And third, of course, it will be in the headlines.
Expectations Are Down
Everyone seems to be banking on a slowdown, with average estimates around a gain of 200,000 jobs, down from 261,000 the previous month. The unemployment rate is expected to tick up, from 3.7 percent to 3.8 percent, and the average hours worked to stay steady at 34.5. In other words, expectations are for a continuation of the slowdown we have been seeing for most of this year. Given the ADP report this morning, which came in at 127,000, well below last month’s 239,000 and well below expectations of 200,000, the risk appears to be to the downside. In other words, expectations are down, and a miss—maybe a large one—is certainly possible.
What would that mean? Well, for the headlines, we could certainly expect hyperventilating about how the economy is crashing and a recession is imminent, as we have seen many times before. But even if we get a miss? I think that conditions remain positive. And as an investor, no real reaction would be warranted to your portfolios.
Bad News Not a Big Deal?
There are two main reasons for this. The first is that even with a weak report, the economy would continue to grow. One month’s data is not indicative, and we often see bad months followed by good months. Even if we did see a weak month, as of this morning’s JOLTS report, there are still more than 10 million open jobs out there. Even if we did see a weak month for job creation, total labor demand remains steady given the stability of the average hours worked number. Finally, even if we do get a weak month, that “weak” month would still be at or close to the levels usually seen in an expansion. In other words, this would be a return to normal from the abnormally good job growth since the pandemic and not something to worry about.
From a market perspective, there would also be reasons to remain calm. With wage growth still elevated, the total purchasing power would continue to grow faster than jobs. Indeed, consumer spending has held up well. Companies’ top lines should continue to grow. And with slower job growth, presumably the Fed would be getting what it wants, which will help mitigate some of the future rate increases, which will also support markets. As long as markets are driven by rates and inflation, bad news can be good news as far as the economy is concerned. A miss might actually be good for markets. That is the big picture: bad news is possible, but it wouldn’t be a big deal.
Could We Get a Miss?
Expectations for job growth are down, and there is a good chance of a miss. If we do get a miss, though, it won’t mean that much as it will leave the economy still growing and close to normal expansionary levels. In fact, if a miss helps on inflation, it could actually help boost markets. So what happens with the jobs report on Friday is very much up in the air, with slower growth expected, and it could be worse. But in the big picture, the net result will not be something to worry about.
Could we get a miss? Yes. Should we pay attention? Yes, indeed. Should we worry about it? Not even close.
Keep calm and carry on.
