How Bad a Jobs Report Is Discounted?
Posted by David Gaffen
HmmmMarket-moving news seems to hit every few minutes, but that doesn’t mean investors aren’t steeling themselves for the jobs report, the biggest economic report of the month, due out Friday morning.
But is the market ready for what is likely to be one of the largest monthly declines in payrolls since the early 1980s? The expectation is for a decline in payrolls of 320,000, according to Dow Jones Newswires, and any drop larger than 343,000 would come in as the largest fall since May 1980, when payrolls fell by 431,000.
Traders believe that the market, after Monday’s horrific decline and the relatively solid action on Tuesday and Wednesday, is ready for the news. One of the hallmarks of this volatile market has been the constant state of surprise investors have found themselves in with each succeeding economic release.
For the last couple of days, however, investors have hung in despite a litany of lousy news related to the economy, corporate earnings, and the state of the automakers. It may be an early indication that the knee-jerk panic response is fading, and if so, that’s a good sign.
“People have been expecting the worst for a while now,” says Todd Leone, head of listed trading at Cowen & Co. “Unless it’s really, really bad, people are expecting the worst from the jobs reports, and everyone has discounted it.”
The early indicators are not encouraging. Automatic Data Processing estimated a decline of 250,000 in nonfarm, non-government jobs, and over the past five months, it has, on average, been about 120,000 higher than the actual figure, according to Tony Crescenzi, chief bond market strategist at Miller Tabak.
Meanwhile, the Institute for Supply Management’s twin surveys on the manufacturing and non-manufacturing sector both showed deterioration in its employment indexes, suggesting that fewer companies are actively hiring workers. The unemployment rate is expected to rise to 6.8% as companies continued to let go of workers through the freeze in the financial markets and as the 2007-2008 recession closed in on its one-year mark.
David Rovelli, managing director in trading at Canaccord Adams, says that if the unemployment rate spikes to 7% or higher, or if nonfarm payroll losses hit 350,000 or more, then the market’s reaction may be uglier. He also says a big increase in payroll revisions would hurt as well. “A lot of stuff is priced in,” he says. |
