The government hasn’t labeled the release of economic data as essential and necessary to produce in a shutdown.
For the September employment report, economists expect headline nonfarm payrolls to increase by 180,000. That’s slightly above the increase of 169,000 in August and the six-month moving average of 160,000. This average has dropped recently because of more-modest job growth in July and August, and the sizable downward revisions recorded in those months. Given recent experience, July and August results could be revised even lower.
The unemployment rate probably held steady at 7.3 percent in September, but there’s a good possibility that it could have declined to 7.2 percent. Average hours worked in the private sector should hold steady at 34.5 per week, while the consensus estimate looks for a modest 0.2 percent month-over-month pickup in average hourly earnings.
The Federal Reserve will be paying close attention to the figures in this last payrolls report before the Federal Open Market Committee meeting in late October. “Unless jobs surprise to the upside, the likelihood of a taper at the October meeting will stay quite low,” Paul Edelstein, IHS Global Insight U.S. economist, opined in a note to clients.
Leading up to the government jobs report, market participants will receive a few other labor-related reports, including the September ADP estimate of private payrolls and weekly jobless claims.
Economists forecast Automatic Data Processing, or ADP, private-payrolls growth of 180,000 in September, up from 176,000 in August. That’s higher than the six-month moving average of 164,000. In August, ADP payrolls came in 7,000 higher than the government’s jobs report.
The New Norm
Barclays economist Dean Maki believes that the combination of moderate gross domestic product and job growth and a rapidly falling unemployment rate will be with us for some time.
A drop in the unemployment rate because more people left the labor force is not always “a decline for the wrong reason,” Maki said, adding that structural forces can explain two-thirds of the reduction in the labor force participation rate over the past decade, with the retirement of baby boomers the largest downward force.
As they retire, less job growth is now needed to push the unemployment rate down. Maki estimates that a 75,000 -100,000 monthly pace of jobs growth will keep the unemployment rate steady and anything notably stronger than 100,000 will push it down.
This also means that potential GDP growth is much slower than it used to be because labor supply growth is a key element of potential GDP growth and is therefore much slower than it used to be.
The main question is how the Fed will react to these data in its choice of when to taper the pace of asset purchases.
At his June press conference, Chairman Ben Bernanke seemed to emphasize the unemployment rate as the key driver of tapering, as he said the FOMC planned to finish the asset purchase program when the unemployment rate was in the vicinity of 7 percent.
Since then, the unemployment rate has fallen from 7.6 percent to 7.3 percent, suggesting significant progress on this front, which would seem to argue for tapering. However, in his September press conference, Bernanke backed away from the 7.0 percent rate as a guidepost and did not provide any others to take its place.
“With no clear guidance from the Fed on the criteria it will use to decide when to taper, uncertainty about this decision is very high,” Maki said. “At this point, we believe one factor holding back the Fed in September was the slowdown in job growth, with the three-month average down to 148,000 in August from a recent peak of 233,000 in February.”
He expects some improvement on this front over the next few months and the Fed to taper the pace of asset purchases in December.
“However, if the Fed chooses to focus on meeting its forecast for GDP growth to reach 3-3.5 percent, it could take considerably longer, as we do not expect growth to reach that point consistently through 2014,” Maki said, adding that the Fed has regularly been too optimistic on GDP growth in this recovery, and he expects this pattern to persist.
