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It’s the start of October and you know what that means – only 8 more weeks until Thanksgiving week! Oh, that and Uncle Sam will also publish its September non-farm payrolls (NFP) report on Friday (October 6, 12:30 pm GMT).

How can you make pips from the release? Let’s discuss a few points:

What happened last time?

  • August NFP: 156K vs. 180K expected
  • July NFP: downgraded from 209K to 189K
  • June NFP: downgraded from 230K to 210K
  • Average hourly earnings (m/m): 0.1% vs. 0.2% expected
  • Unemployment rate: ticked higher from 4.3% to 4.4% vs. 4.3% expected
  • Labor force participation rate: unchanged at 62.9%

Back in late August we discussed how leading indicators such as Markit’s PMI reports, as well as the report’s historical tendency to print weak numbers point to a weak reading in August.

And that’s exactly what happened! A net of 156,000 jobs were created for the month, which was weaker than the expected 180,000 increase and the 209,000 jobs added in July. Even worse, both June and July’s numbers were DOWNGRADED to reflect a net decrease of 41,000 jobs for both months. Yikes!

A closer look didn’t make the picture look prettier. The unemployment rate ticked higher from 4.3% to 4.4% even as the labor force participation rate remained at 62.9%. Unemployed workers rising by another 151,000 to 7.1 million might have something to do with it.

Meanwhile, average hourly earnings only grew by 0.1% when analysts had expected a 0.2% uptick.

Not surprisingly, the dollar spiked lower at the report’s broad weakness. The move didn’t last long, however, as the Greenback soon regained its losses (and then some) by the end of the day.

Overlay of USD Pairs: 15-Minute Forex Chart
Overlay of USD Pairs: 15-Minute Forex Chart

Some point to the weakness being priced in sell-the-rumor, buy-the-news style as the reason for the intraday reversal, while others believe that investors merely shrugged off the weakness in favor of pricing in a potentially hawkish FOMC statement scheduled later in the month.

What can we expect this time?

  • Non-farm payrolls: 85K vs. 156K previous
  • Unemployment rate to steady at 4.4%
  • Average hourly earnings (m/m): 0.3% vs. 0.1% previous

Market players only expect that a net of around 85K jobs were created in September, down from August’s 156K uptick. And we don’t have far to look for the main reason.

While the Bureau of Labor Statistics noted that “Hurricane Harvey had no discernible effect on the employment and unemployment,” it also added that “household survey data collection was completed before the storm.” This means that last month’s release has yet to reflect any impact of Hurricanes Harvey and Irma.

So what do leading indicators say? We have yet to see the ADP report and the ISM non-manufacturing PMI, so we only have the ISM manufacturing PMI and Markit’s manufacturing and services PMIs to go with. And fortunately for Uncle Sam’s workers, the numbers look promising.

Markit’s manufacturing PMI may have risen only modestly in September, but the employment component expanded to its fastest rate in nine months. Ditto for the flash reading for Markit’s services PMI, which saw some slippage from August but showed a rise in new work that “led to solid employment growth” in September.

Markit commented that

“The US economy showed encouraging resilience in a month of hurricane disruption. Although the September surveys indicated a moderation in growth of business activity, the overall rate of expansion remained robust.”

The ISM manufacturing PMI showed the same resilience. The headline number inched 2.0% higher at 60.8 – its highest reading since May 2004 – with the employment component rising by 0.4% to a reading of 60.3. That’s the highest since June 2011, yo!

Before you price in a strong reading, though, take note that September’s releases have slightly favored a weaker-than-expected reading in the last 10 years.

Not only that, but the initial NFP release also have a (slight) tendency to come in weaker than August’s numbers.

Luckily, seasonality has favored upward revisions to August’s employment numbers.

Based on what we have so far, it looks like hurricanes Harvey and Irma haven’t affected the manufacturers’ and service companies’ hiring practices. In fact, it sounded like they were more worried about supply chain backlogs (which could necessitate more hiring in the near future) than their prospects.

But it’s a very raw picture yet. The ADP report and ISM non-manufacturing PMI, which will be released tomorrow at 12:15 pm and 2:30 pm GMT respectively, could give us a clearer picture for September’s labor market prospects.

If the NFP report shows weaknesses that surpass even the investors’ bearish outlook, then the Fed could think twice about raising its interest rates one more time as scheduled. But if the hurricanes haven’t affected the labor market’s progress as the available PMIs suggest, then we could see the dollar extend its gains across the board.