Strong Job Growth Expected in Friday Report

Forecasts call for a strong increase in November payrolls, though economists are sharply divided about what the number in Friday's report will actually be.

The unemployment report, which is closely watched by investors, will be out at 8:30 am New York time.

The average forecast among economists calls for nonfarm jobs to rise by 110,000 in November, up from an increase of 92,000 in October.

November’s unemployment rate is projected to increase slightly to 4.5% from a five-year low of 4.4% in October.

If the report is stronger than expected, it may spark a bullish market response. But a weak unemployment report may trigger more profit-taking in the stock market, a bond market rally and additional pressure on the dollar. 

Affect Rate Outlook

The data also could help further cement opinions heading into Tuesday’s meeting of Federal Reserve policymakers. Although the Fed is expected to leave interest rates unchanged at the meeting, a big expansion in the jobs market could affect the Fed's rate outlook, which is issued afterwards.

Fed officials have been hiking rates for the past two years in an attempt to keep inflation in check without triggering a full-blown recession.

At the moment, the labor market appears to be withstanding softer economic conditions, particularly in the housing and autos sectors. However, construction activity could be a wildcard.

Although the once-heated housing market has cooled, the weakness in the sector hasn’t yet trickled into jobs data. Construction workers are still busy completing projects that were started prior to the slump in housing. However, once these projects are completed, these workers could find themselves out of work.

Still, some think the figures will be a little stronger than the consensus forecast.

"Businesses are still reporting that they can't get the workers they want," said Joel Naroff, president of Naroff Economic Advisors. He expects nonfarm jobs to rise by between 135,000 and 140,000.

Layoffs Show Decline

The Labor Department reported earlier today that the number of newly laid off workers filing claims for unemployment benefits dropped last week by the largest amount in six months. This relieved some worries about a big jump in claims in the previous week.

The total number of claims filed last week fell to 324,000, a decline of 34,000 from the prior week, the report said. This represents the biggest one-week drop since the first week in June.

The decrease was in line with expectations of economists, who believed that an unexpectedly large jump of 35,000 claims the previous week was an aberration.

With this, the four-week moving average for jobless claims edged up slightly to 328,750, the highest level since May while the number of Americans receiving claims rose to 2.52 million.

Of late, much of the data coming in on the labor market has been upbeat.

The sentiment for this week’s payroll data has drifted upwards since the latest report from Automatic Data Processing, said Dan Seto, a senior economist at Sumitomo Mitsui Asset Management.

The ADP report on Wednesday showed strong jobs creation of 158,000 new positions by private employers last month. That report, however, is not always accurate. In recent months, the report has missed the mark by some 90,000 jobs.

Seto said he is paying more attention to the unemployment rate, which he expects will come in at about 4.4%.

"Inflationary Pressures"

“If we hold this level or move slightly lower, it will build more discomfort for some inflationary pressures going forward,” Seto said.

Meanwhile, Monster Worldwide reported its Monster Employment Index rose three points to 175 in November from October, its highest reading since the online recruiter launched the benchmark index in October 2003. The November reading, which is up from 149 in November 2005, reflects employers' increasing holiday-season and year-end hiring, Monster said.

Still, none of these measures are as closely watched as Friday’s jobs report.

According to Seto, the markets are looking at each new data point with increased scrutiny because there are such diverging opinions regarding the economy being reflected in the market. This may be a result of past economic strength, he said.

“There just might be too much money in the market,” he said, pointing to our own strong economy, economic strength outside the U.S., and huge profits from extremely high oil prices.