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Feel like trading a potentially volatile trading session? Tomorrow at 12:30 pm GMT the U.S. will print its major labor market numbers for the month of September.

Why is it a big deal?

The NFP is a monthly report that measures the number of workers employed in non-farming sectors manufacturing, services, or construction.

It’s typically released together with the unemployment rate and wage growth estimates. Taken together, these major data points provide useful insights into Uncle Sam’s labor market trends.

What happened last time?

  • August NFP down from 159K to 130K vs. 163K expected
  • August jobless rate steady at 3.7% as expected
  • August avg. hourly earnings accelerates from 0.3% to 0.4% vs. 0.3% expected
  • July NFP revised lower from 164K to 159K

The economy added a net of 130,000 jobs in August, which was weaker than the 163,000 addition that analysts had eyed. Oh, and June and July’s numbers also reflected 20,000 fewer hires than initially reported!

Fortunately for dollar bulls, other components of the report weren’t as weak. Increases in workweek and hourly earnings, for example, hinted that employers aren’t decreasing job prospects just yet. That’s good news considering that consumer spending makes up a YUUUGE chunk of the U.S. economy!

It also helped that Fed head honcho Powell shared in a presser that he’s not seeing a recession even as he and his team remain ready to act as “appropriate” to maintain growth.

USD 15-Minute Forex Charts
USD 15-Minute Forex Charts

The dollar lost pips across the board at the hour of the release but soon recovered its losses later in the trading session.

What are traders expecting this time?

  • September NFP to improve from 130K to 147K
  • September jobless rate to hold steady at 3.7%
  • September avg. hourly earnings to slow down from 0.4% to 0.3%

Our economic calendar tells us that traders see the economy adding jobs at a faster pace in September though average hourly earnings could slow down a bit.

Is it reasonable to expect higher net job additions in September?

Markit’s manufacturing PMI surprised markets last week when it hit a five-month high of 51.0 (from 50.3). The survey also noted, however, that the current pace of job cuts points to “non-farm payroll growth falling below 100,000.

ISM’s version of the PMI also shocked markets, but this time because its index dropped deeper into contractionary territory (from 49.1 to 47.8) in September. The employment component also dropped to its lowest since January 2016 and reflected cautiousness over “employment expansion.”

Last but not the least is the ADP report, which showed private businesses hiring 135K workers for the month against August’s 157K new hires.

So it’s not looking good for some leading indicators. What does history tell us?

If we consider the last ten releases, we can see that analysts tend to overestimate September’s hiring numbers. What’s more, September’s headline NFP also tend to print lower than August’s numbers.

Unfortunately for us (but fortunately for volatility nuts), wage growth tendencies aren’t as obvious.

How might the dollar react?

Leading indicators and history suggest that we could see weaker-than-expected headline NFP numbers in September. Now what?

Well, keep in mind that a lot of other analysts are expecting the same scenario. This means that upside surprises in the NFP and/or wage growth numbers will likely cause more one-directional move for the dollar than an actual disappointment.

Note that Powell is giving a short speech just hours after the NFP release. If this week’s reports point to weaker consumer spending (and inflation) trends, then we could hear dovish statements from the Fed Chair. But if Uncle Sam’s labor market remains strong, then there would be less pressure on the FOMC gang to cut their rates further this year.