Monthly non-farm payrolls are usually a big deal for the market, but that may not be the case tomorrow.
After all, the big story now is the possibility of rate cuts by the Federal Reserve. Officials from the U.S. central bank have grown increasingly dovish, including comments this week by top policymakers. That marks a sharp contrast from their rate-hiking trend in late 2018.
This matters because it has the potential to make “bad news” into “good news.” For instance, it would be “bad” if the Labor Department reports fewer job gains than the expected 180,000. However, that could make the market think the Fed will respond more quickly with a rate cut, which would be “good.” (Or, at least bullish.)
It also seems that individual data points matter less to the market these days. We know the economy is expanding with low inflation and creating jobs. We also know that actions like tariffs and tax cuts have had a big impact on sentiment. But these are political, not economic, events. And, they can change quickly.
Even if the market were concerned about the underlying economy, there still aren’t clear recessionary signals. ADP’s private-sector payrolls report missed estimates badly yesterday, but we didn’t see a corresponding spike in jobless claims today. The Institute for Supply Management’s factory index fell more than expected to its worst level in three years, but the service index surprised to the upside.
Another potential positive seems to be at work: The U.S. consumer could be offsetting weakness in the business sector. Personal income and spending, along with consumer sentiment and confidence, have been strong lately. Interestingly, this is a reversal of last year’s pattern. There are also continued reports of lower-income Americans spending more.
In conclusion, the Labor Department’s employment report is usually among the most important events of the month. But this time, several other variables are at work. That could make the number a big anticlimax.