Investing.com – Markets will be keeping a close eye on Friday’s release of the April employment report at 8:30AM ET (12:30GMT) as they look to confirm that March’s job creation was a temporary outlier due to bad weather and that labor market conditions bounced back at the beginning of the second quarter.
The consensus forecast is that the data will show jobs growth of 185,000, following an increase of just 98,000 in March, the unemployment rate is forecast to inch up to 4.6% from 4.5%, while average hourly earnings are expected to rise 0.3% after gaining 0.2% a month earlier.
Already firm labor market expected to strengthen further
The Federal Reserve’s statement on Wednesday’s monetary policy decision revealed that the U.S. central bank felt the economic weakness registered in the first quarter was “transitory” and that “the labor market has continued to strengthen even as growth in economic activity slowed”.
The Fed also stated its expectations that “labor market conditions will strengthen somewhat further” as the economy moves forward into the second quarter.
Though March’s reading was “weak”, most experts pointed out that job growth naturally slows as the economy nears full employment.
Wednesday’s employment change report from payroll processor ADP did reveal a slowdown in job creation to 177,000 posts in April, compared to the prior 255,000. While not viewed as a reliable guide for the government jobs report, it does give guidance on private-sector hiring.
“Job growth will slow as companies will find it harder to fill open positions,” Moody's Analytics' chief economist Mark Zandi, who collaborates in the elaboration of the ADP report, said on a conference call Wednesday after the release.
Furthermore, Zandi insisted that the labor market will get tighter and that wage growth was picking up.
Experts at LPL Financial recommended remembering that “jobs have been positive for a record 78 consecutive months.”
“Job creation would likely need to slow to a sustained 25,000-50,000 per month to signal that a recession may be imminent,” they said, adding that “in fact, December 2010 and January 2011 were the last time there were back-to-back months with less than 100,000 jobs created.”
These strategists suggested that job creation in line with expectations would keep the Fed on hike with two further rate hikes this year.
Downside risk to Friday’s numbers
They did however admit that “a potential slowdown in job creation and lack of acceleration in wages would likely lower expectations”.
Though expectations for Friday’s nonfarm payrolls are geared towards a healthy bounce back from March’s numbers that would be nearly double the previous read on job creations, other experts recognized the downside risk.
“If Friday's payroll report disappoints, the back-to-back weaker results may cause investors to further question the economy's momentum, and begin to push 10-year Treasury yields back into their long-term bear channel,” JP Morgan strategists said.
“A risk-off scenario in the financials is then likely to occur as investors more seriously question the health of the economy and the upside potential in rates,” they remarked.
Ahead of the report and a slew of Fed speakers, markets priced in the odds of a hike at the June meeting at around 67%, according to Investing.com’s Fed Rate Monitor Tool.
Meanwhile, U.S. futures also showed cautious trade. The blue-chip Dow futures slipped 11 points, or 0.05%, at 7:22AM ET (11:22GMT), the S&P 500 futures inched up 1 point, or 0.04%, while the tech-heavy Nasdaq 100 futures edged forward 2 points, or 0.04%.
The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was up 0.17% at 98.78 by 7:23AM ET (11:23GMT), while Comex gold futures gained $5.84, or 0.5%, to $1,234.44 a troy ounce.