Traders see the always-important jobs report as even more key because this report and the one in September will be important elements for the Fed, in determining whether it will carry out more quantitative easing when it meets Sept. 12. The Fed this week concluded a two-day meeting without taking action, but it did strengthen its commitment to conduct a new round of asset purchases, if necessary. Stocks were down sharply Thursday, after European Central Bank took no new steps to ease.
Mesirow Financial chief economist Diane Swonk also expects to see construction hiring improve. “We’ve got a lot going on in apartment construction and other things,” she said. But she noted the defense industry could be one weak spot because of the industry’s concern that it will be hit by automatic spending cuts after Jan. 1, if Congress does not act to stop them.
“These producers are not gearing up and in fact, they’re holding back. They’re not staffing up,” she said.
Swonk said she expects total nonfarm payrolls of 95,000. “I’d love to be surprised on the upside, but I’m afraid I’m going to be surprised on the downside,” she said.
BTIG chief global strategist Dan Greenhaus expects to see 115,000 jobs, but with the current soft trend in data, markets will not be surprised if it is lower. “If it’s anything from 75,000 to 125,000 who cares. At that level, job growth is just annoyingly slow, and it’s hard to get enthusiastic,” he said.
Greenhaus said reported job growth was probably too strong in the first quarter, when it averaged 225,000 a month, and too slow in the spring. “So hopefully over the next three months, it will turn to a more normalized pace of 130,000 to 150,000 jobs – normal for this environment,” he said.
Citigroup economists are more optimistic and expect to see the pace of 140,000 for July. Citigroup economist Steven Wieting said the data earlier in the year was impacted by seasonal factors, making the first quarter too strong and second quarter too weak. “You should have something closer to the average of the first and second quarter. That’s why our estimate is 140,000,” he said.
Basile said the leading indicators for employment have been mixed. He said one warning sign of a potentially worse job environment was in recent Fed surveys from Richmond and Dallas, and the ISM-New York. “All three show revenue running below employment in July. And these reports cover some major population centers,” he said.
“Think of it from a balance sheet perspective: revenues growing slower than labor costs. Something’s got to give under this scenario, and the path of least resistance is cutting labor costs,” said Basile.
There was also a falloff in the number on online job ads this week, the steepest drop in three years. Basile said new ads were most of the weakness, and it’s hard to say whether that will be reflected in the July jobs data. Ads in July fell by 153,600 after a strong gain of 232,000 in June, according to the Conference Board.
Besides the employment report, there is ISM nonmanufacturing data at 10 a.m.
Procter and Gamble reports earnings before the opening bell, and Berkshire Hathaway reports after the close.
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