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There's a high bar for an August jobs report surprise

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·4 min read
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This article first appeared in the Morning Brief. Get the Morning Brief sent directly to your inbox every Monday to Friday by 6:30 a.m. ET. Subscribe

Friday, September 3, 2021

The August jobs report matters like every other jobs report. 

In just a few hours, the Labor Department will release the August jobs report, and expectations are that hiring slowed down last month. 

Consensus estimates call for non-farm payroll growth of 725,000 during the month, with the unemployment rate expected to drop to a pandemic-era low of 5.2%. 

The eagerly-awaited data series comes as we've chronicled a modest softening in the pace of the economic recovery, while the backdrop of this rebound remains very much intact. Demand is strong for labor, goods, services, and so forth, while the spread of the Delta variant certainly cooled activity in some parts of the economy. 

But like all jobs reports, the focus on Friday is on what this data will (or will not) mean for Federal Reserve monetary policy. And the question Friday's report asks is simple: will this push the Fed to begin tapering its asset purchases?

In a story earlier this week on Yahoo Finance, my colleague Brian Cheung highlighted the importance of this morning's data in sussing out whether "substantial further progress" has been made on the labor market. As readers are likely familiar, Fed Chair Jerome Powell has said — time and again — that he would need to see this bar met to feel comfortable slowing the central bank's current pace of asset purchases. 

But if Powell has been clear about one thing since the pandemic sent the central bank into an emergency setting in the late winter of 2020, it is that patience will rule the day in changing this policy stance. 

Echoing Cheung's story, Wells Fargo strategist Mike Schumacher told Yahoo Finance Live this week that the central bank "is going to take away or at least reach for the punchbowl fairly soon — maybe not in September, maybe not even November, but probably by December." 

But a window of three months for signaling that a gradual change in policy could happen isn't exactly rushing for the exits. 

"The economy is still showing growth, but momentum has decelerated," Bespoke Investment Group strategists wrote in a note published Thursday. "It's hard for us to imagine Powell moving up the taper timeline just as we head into the fall as the Delta surge continues."

Which suggests that whether Friday's jobs report is strong, weak, or in-line with estimates, there won't be a huge shift in how Powell thinks about the right time for adjusting policy. And as the Fed chair said in his highly-anticipated Jackson Hole remarks last week, "with substantial slack remaining in the labor market and the pandemic continuing, such a mistake could be particularly harmful."

Because while regional Fed presidents have been definitive and outspoken in recent weeks about their views about a taper timeline, the Fed chair knows these risks are asymmetric. 

Move too soon and you may well shock markets and upset a downshifting economy. Wait too long and you risk pundits telling you you're waiting too long. 

And as the old adage goes: never read the comments. 

By Myles Udland, reporter and anchor for Yahoo Finance Live. Follow him at @MylesUdland

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What to watch today

Economy

  • 8:30 a.m. ET: Change in non-farm payrolls, August (725,000 expected, 943,000 in July)

  • 8:30 a.m. ET: Unemployment rate, August (5.2% expected, 5.4% in July)

  • 8:30 a.m. ET: Average hourly earnings, month-over-month, August (0.3% expected, 0.4% in July)

  • 8:30 a.m. ET: Average hourly earnings, year-over-year, August (3.9% expected, 4.0% in July)

  • 9:45 a.m. ET: Markit U.S. services PMI, August final (55.2 expected, 55.2 in prior print)

  • 9:45 a.m. ET: Markit U.S. composite PMI, August final (55.4 in prior print)

  • 10:00 a.m. ET: ISM Services Index, August (61.7 expected, 64.1 in July)

Earnings

  • No notable reports scheduled for release

Politics

  • President Biden will speak at 10 a.m. ET about the August jobs report. He often uses these speeches to sell his overall economic agenda, including the proposed $3.5 trillion Build Back Better Act currently being developed in Congress. In the afternoon, Biden is also scheduled to tour Louisiana to see damage from Hurricane Ida. In a speech at the White House yesterday, he said extreme storms made worse by climate change are “one of the great challenges of our time.”

  • On Capitol Hill, both chambers are largely quiet today with only pro forma sessions planned. But senior lawmakers could be working furiously behind the scenes following an op-ed by Sen. Joe Manchin declaring Congress needs a “strategic pause” on some of Biden’s more expensive ideas. 

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