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Why Wall Street Isn’t Hoping for a Strong Jobs Report Tomorrow

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US jobs report

The US Department of Labor (VTI) is set to release December employment data on January 4. This report has attracted financial markets’ increased attention lately, as it is a key indicator of the health of the US economy. Moreover, the report is one of the key pieces of data for the Fed to consider while deciding on rate hikes. Therefore, investors should understand the expectations for the report before the actual numbers come out.

Expectations versus reality

What Wall Street wants from the December jobs report is not very clear. While a strong jobs report would mean continued strength in the US economy, it could also entail a continuation of gradual rate hikes by the Fed. The markets definitely don’t want to see this at the moment.

As we highlighted in Are Stock Markets Celebrating a Weaker US Jobs Report?, the markets (SPY) (DIA) were trading higher after the weaker-than-expected jobs report for November was released. The weaker report would have supported the dovish argument for the Fed’s rate hike (TLT) (BND) path.

Jobs report and equity markets

The US jobs report for November was released on December 7. The report was mostly worse than economists’ expectations. The job additions came in at 155,000 as compared to consensus expectations of 198,000. October’s non-farm payrolls (or NFP) were also revised down to 237,000 from 250,000 previously, while September’s NFP were revised higher by 1,000 to 119,000. The unemployment rate remained steady at 3.7% in November. The most closely watched piece of the jobs report, average hourly earnings, rose by 3.1% from the same period a year ago. While the annual growth was in line with analysts’ expectations, the sequential growth of 0.2% lagged analysts’ estimates of 0.3%.

The strong job report gave additional strength to the tight labor market argument. In the next part of this series, we’ll look at expectations for wage growth in December.

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