Following September’s unemployment report – and the influence of Hurricanes Harvey and Irma on the Houston and South Florida labor markets – John Boyd Jr., principal of New Jersey-based The Boyd Co. Inc., said he anticipates a “sharp rebound” in October when the latest numbers are released Friday.
Unemployment fell to a 16-year low of 4.2% in September. A survey of economists found they expect the unemployment rate to be largely unchanged in October. Many economists, in fact, think the U.S. economy is already at full employment and further drops in the unemployment rate may not be possible. The national unemployment rate has not been below 4.0% since the late 1960s.
“Friday's job report is hitting at a very hospitable time for the stock market,” Boyd said, noting House Republicans were expected to announce the details of a tax cut plan for businesses and taxpayers.
And House Republicans did reveal their tax reform proposal Thursday.
“A positive jobs report on Friday may set the market up for another rally," Boyd said. "To what degree expectations of tax reform/tax cuts are already baked in the market, the focus on that is good for the market. The House GOP plans to keep the property tax deduction – which I always suspected was an administration bargaining chip and not truly off the table – will be especially well received by the market as investor confidence among wealthy and influential investors in high-cost states like New York, New Jersey and Connecticut should get a boost.”
John Engle, president of Chicago-area family office merchant bank Almington Capital, was optimistic as well.
“The state and weekly jobless claims reports indicate a strengthening labor market,” Engle said. “The labor market appears to be tightening. Even better, worker productivity appears to be growing at a healthier clip. I expect the October unemployment report to reflect that continued strength.”
Engle’s position on state jobless reports was bolstered in recent days by reports from states such as Vermont, Tennessee and North Carolina.
“Weekly unemployment claims stats support an optimistic perspective,” said Alexander Kuptsikevich, analyst for London-based FxPro.com, “yet the expected figure remains difficult to justify, considering that it would mark the highest increase in more than two years."
“Perhaps what’s most important is not employment figures, naturally distorted by the short-term impact of the recent hurricanes, but data on wages. The annual growth rate is expected to fall to 2.7%, down from 2.9%, yet the labor market deficit may trigger an increase in wages."
“Strong employment growth data in excess of 300,000, together with a wage growth rate above 2.7%, would be particularly positive for the markets in general and the U.S. dollar in particular, while speculation regarding next year’s rate hikes is likely to strengthen.”
Brian Rhonemus of Sanford Rose Associates-Rhonemus Group focused on underemployment.
“I attended a conference the last two days with a number of bank clients from the Midwest,” Rhonemus said. “We spent a significant amount of time talking about the economic update and some of the underlying concerns. Underemployment is a major concern that could derail continued growth. Candidate pools in most industries continue to fall short of job demand. Underemployment is hovering above 8%, compared to 4.2% unemployment. Each industry needs to identify ways to tap into this potential candidate pool to fill open positions. Investment in training and development programs address many of these issues and go a long way in making employees feel good about where they work.”
How will Friday’s unemployment number affect the market?
“A weak nonfarms payroll number and strong data on wages would likely cause a mixed reaction in the markets, though wage data are perhaps more reflective of general trends in the country,” Kuptsikevich said. “A weak nonfarms payroll, coupled with a sluggish increase in wages, is expected to have a negative impact on the dollar. The currency would then have to fight off sales as markets could strengthen under the belief that, following December, they would have to wait until June 2018 for the possibility of a rate hike.”
The Labor Department will release October’s unemployment rate Friday at 8:30 a.m. Eastern time.
