UBS expects “big revision” to August NFP report


2 October, AtoZForex.com, Lagos – It is another jobs report day and the world awaits the all important data. Economists forecast 200k jobs added in the past month, a potential jump from 173k recorded last month, which marked the second lowest month in the year so far.

August weakness temporary?

Investors will now watch to see if the weak report for August is a temporary situation or the beginning of cycle of bad job condition. The three month average remains around 221k. Another dip could raise fears that the U.S. economy is losing momentum amid economic woes abroad.

Shrinking labor force

Another factor to consider is that unemployment remains within the 4.9% to 5.2% range that the Federal Reserve considers the economy’s long-run average. But in fact, the sharp drop in joblessness is as a result of the shrinking labor force. The number of Americans who are employable within the ages 25 to 54 has dropped since January 2014 to 80.7% from 81% despite strong job growth. This is a key reason why the Fed still believes that a slack exists in the labor market.

Wages

Also, wage growth has not been quite impressive as workers’ wages continue to grow at a subdued pace despite the drop in unemployment. The slack in wage growth undermines the theory among Fed officials that falling unemployment pushes up prices and wages, requiring tighter credit to keep inflation in check.

UBS expects “big revision”

With all these highlighted, UBS economist Drew Matus said he is expecting a good monthly jobs report on Friday, which could spell trouble for the Federal Reserve’s plans for interest rates. He also believes that the job reading there will be a “big revision” to the prior month’s NFP report which may spark fears that the Fed has waited too long to raise its benchmark interest rate from near zero, saying:

For me, the biggest risk right now in the U.S. economy is actually that people begin to sense that the Fed’s maybe waited a little too long,” 

“If we can get to December and we just get OK news that keeps us on this stable platform, we’re good. If the economy accelerates in the next three months, then the Fed is way offsides, and everyone’s going to know it. And you’re going to see the response in the market.”

The job data for September is generally expected to come at 200k, which is around the average monthly gain throughout the year.

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