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What to Expect from US Sept Non-Farm Payrolls

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Analysts are expecting a relatively downbeat result from US employment data.

But if a particular theory about prior patterns holds true, there is a chance that NFP figures could substantially beat expectations. There is a delicate balance between the worsening outlook for the economy and the potential impact of stimulus policies.

Last month, employment figures substantially underperformed expectations. This means that this month, we could see an adjustment of prior figures to the upside.

Even if the results come in bang in line, we could see a positive move in markets due to this adjustment. That said, there are some substantial reasons to suspect that the result won’t even reach the current modest expectations.

This could significantly weigh on the dollar, potentially necessitating the Fed to take extraordinary measures to support the economy in the middle of their taper.

Why there is potential for optimism

The timing of the end of enhanced unemployment benefits could still play an important role in the data.

We saw an unexpected rise in employment the month after the first “batch” of unemployment benefits expired in July (reflected in the August data). After that, it would be normal to expect a drop in hiring.

Then, at the end of August, the remaining states ended their enhanced unemployment programs.

This could be a bigger event because these 25 states are the largest and the ones with the highest unemployment (New York and California, in particular). If – and it’s a big if – the unemployment benefits were keeping people from getting work, and they were able to get work through the course of the month after the benefits ended, there is a chance for a substantial beat in expectations.

The evidence for and against

To somewhat buttress this idea, ADP employment figures released on Wednesday handsomely beat expectations.

The prior month’s figure was revised higher as well. But, the ADP has lost some of its predictive reputation. Also, in the final week of September, the number of people seeking unemployment increased.

In fact, if the contrary argument about unemployment benefits were true, then we could see lower NFP figures. The argument is that people aren’t returning to work because employers are refusing to raise wages.

Well, wages haven’t increased substantially, despite there being 10.9M job openings according to the last survey.

What we are looking for

The September NFP is expected to come in at 500K, doubling last month’s dismal 235K. The unemployment rate is expected to tick down to 5.1% from 5.2%.

Both measures are generally priced in, with an expectation that the Fed will likely continue its current taper path.

Average hourly earnings are expected to increase 4.6% compared to 4.3% last month. While this might be an argument in favor that employers are raising wages, the rate still remains below inflation.

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