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Friday’s Non-farm payrolls jobs report is expected to show that the United States economy created +50,000 jobs during the month of January, while the US unemployment rate is widely tipped to remain unchanged at 6.7%.
Optimism is high going into the main event, after the ADP private sector jobs report outpaced expectations by over +120,000 jobs. The ADP jobs report is often seen as a leading indicator for the Non-farm payrolls job report.
The state of California is the largest economy in the United States and has recently reopened and report less hospitalizations than the previous month adding further momentum going into Friday’s job number. After undergoing major disruption from the COVID-19 lockdown hiring in California could have a receive a boost, and this could show up in the January jobs report.
Additionally, the US manufacturing sector has been on fire recently. The PMI headline number has consistently outperformed, further underscoring that the sector remains a bright spot for the world’s largest economy.
The ISM manufacturing survey is also trading at elevated levels, despite a minor decline in the headline number last month the overall trend is one of strength. The employment index inside the ISM survey also came in at 52.6 in January, marking a multi-year high, and also provided a hint that job hiring in the manufacturing sector is back on the rise.
It is still worth acknowledging the downside risks for Friday’s jobs report, as weekly jobless claims remain at historically high levels. The ongoing disruption to the US economy from the COVID-19 pandemic in some states still remains a concern.
New York has been hit particularly hard, and economic growth in New York and Jersey have basically grinded to a halt as the COVID-19 pandemic ravages the east coast. Restrictions in other states could also spill over in Friday’s report, and harm jobs hiring.
Any disappointment in tomorrow’s job report could pressure US politicians to speed up the delivery of the proposed $1.9 trillion stimulus package into the US economy. The stimulus bill has been making strong progress in the House of Representatives this week and is helping recover after last week’s GameStop inspired rout.
In terms of expected market reactions, very scenarios exist. If the report surprises to the upside then stocks are likely to rally as traders and investors factor in rising consumption, which is good for many large corporations.
A new consensus amongst market participants may also take hold in regard to the Federal Reserve scaling back its QE program earlier than expected. This is likely to be positive for the United States dollar.
Strangely, if the headline number comes in as expected, or slightly worse than financial markets are unlikely to show much of reaction due to the increased prospect that the United States stimulus will soon be forthcoming.
Something else to note is that any disappointing from the jobs report would only perpetuate the notion that the Federal Reserve will keep its extraordinary fiscal support measures in place for longer, which is bullish for stocks.
