The economy could be close to adding a significant number of jobs, but they are not likely to show up in January's employment report, some economists say.
The consensus forecast is that a total 145,000 non farm payrolls were added in January, and that the unemployment rate is expected to rise slightly to 9.5 percent. Traders say markets may already have factored in a best case scenario, as stocks held steady this week and bonds sold off, sending rates higher.
The yield on the 10-year Thursday was at a nine-month high of 3.543 percent. Stocks ended higher, with the Dow up 20 at 12,062, the highest level since June, 2008. The dollar had a good day, gaining 1.3 against the euro, which was at 1.3635.
"At least from the bond market perspective, a lot of the good news has been priced in, and in the last couple of day because of the strong ISMs," said Nomura Americas Treasury Strategist George Goncalves. Both the ISM manufacturing and services reports were surprisingly strong, and both showed improvement in the employment component. The ISM services sector report, released Thursday, rose to 59.4, its best pace since August, 2005.
The January employment report, which comes out at 8:30 a.m. New York time, follows a disappointing December report, which showed just 103,000 non farm payrolls were added.
"I'm concerned the market is going to be very disappointed by the jobs number because of the weather," said Brown Brothers Harriman chief currency strategist Marc Chandler. Economists have varied opinions on how much winter weather affected employment in January, and many agree it's a wild card.
"My intuition, based on the range of data, suggests we could get a good upside surprise..and if we don't get it this month, perhaps because of weather, I sense in the next several months, we're going to get a number that will surprise well to the upside," said Mark Zandi, chief economist at Moody's Economy.com. He said he expects to see monthly non farm payrolls rise to a level of 250,000 in the next couple of months.
For January, Zandi is forecasting that a total of 140,000 non farm payrolls were added. He expects to see an addition of 150,000 private sector jobs. "It's not just one industry. It's across the board. Sentiment is shifting. It may not be this month, but it's going to be in the next several months," he said.
Economists had forecast the December number at 175,000, and they also missed big on November's forecast. "The collective psyche is pretty fragile, so it doesn't take a whole lot to upend it at this point. Assuming we get a little bit of luck, it seems like to me that we're going to shift into high gear here," Zandi said.
Credit Suisse economist Jonathan Basile agrees that the economy is poised to start adding jobs. "There's a gap opening up between business activity and employment," he said, also pointing to the ISM data.
"The stuff that's going on in these reports is telling you top line is growing and it's probably surprising people, surprising the firms, and that's when they get caught short. When a services firm gets caught short, they hire people," Basile said.
Basile expects to see a private sector number of 150,000 for January, and a total of 135,000 non farm payrolls, after public sector job losses.
"Everybody's saying that everything is telling us we're going to get a blow out number...upside risk is being priced into the market," he said.
Goncalves said if the number's good, it could be a case of being careful of what you wish for. "You don't want the market expectations to start to price in Fed hikes or even higher yields because that will take away some of the liquidity that's keeping that reflation trade alive. Until we know it's sustainable you don't want higher yields to hamper the current progress in risk markets," said Goncalves.
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