Non-Farm Payrolls Preview: Glass half-full or half-empty?

The blockbuster gains of the recent monthly reports are set to dwindle somewhat as the market forecasts a non-farm payroll gain of slightly under one million in September, from the 1.37 million job gains in the prior month. The unemployment rate, which stood at 8.4% in August, is expected to have fallen modestly to 8.2% this month but this may in large part be down to workers giving up looking for work and dropping out of the labour force.

Employment still a way from pre-Covid levels

The re-opening of the economy from May has seen more than 10.6 million jobs created. But even after five months of gains, a consensus print this time around would still mean employment remains more than 10.5 million lower than February, as job losses plunged by more than 22million during the peak of the pandemic crisis until April. So, despite the pandemic rebound, only roughly half of the jobs lost since the outbreak have been regained.

The pace of those gains has also been slowing noticeably over the summer as July saw 3 million fewer jobs added than in June and employment added last month fell short of the 1.8 million that were added in July. That most recent reading included 240k government Census workers who were chasing people up to fill in their forms. That means there is going to be a partial unwind in the September report which may skew the data to the downside.

Plateau in other employment data

Evidence from high frequency economic releases suggests a levelling off in private sector employment, while purchasing managers’ indices suggest only limited gains. The small downtick forecast in the unemployment rate echoes the Markit report which showed that employment continued to increase solidly, albeit at a slower pace than in August. At the same time, the weekly initial and continuing claims figures remain highly elevated, underlining the strains in the jobs market. Last week’s 870k initial jobless claims print again shows a stalling in the improvement and that figure still remains noticeably 200k above the peak level experienced during the Global Financial Crisis over a decade ago.

Continuing claims, that is the unemployed actively collecting state jobless aid, have been easing for several weeks, although again the most recent figure remains historically high at 12.6 million compared with 6.6 million during the 2008-2009 crisis.

Upside to this month’s figures

The flip side to the plateauing in the initial jobless claims figures is that for the reference period of this month’s report at least, both claims figures continued to decline between mid-August and mid-September, which could reduce the risk of a major negative surprise. The September report has also historically been affected by seasonal issues as the summer vacation resort employment declines as the season ends, and without these job losses this year, the reported gain might look stronger.

The fragility of the economic recovery, due essentially to a second wave of coronavirus cases, has been front and centre in investor’s minds over the last few weeks, fed in part by more cautious statements made by central banks. The dollar has benefitted in this environment, but if a low growth, weak recovery regime is cemented by this week’s jobs report, the glass will certainly be viewed as half-empty as the economy struggles to return to pre-Covid levels.