The day that global investors have been impatiently waiting for has finally arrived.
On Friday, the monthly non-farm payrolls data, also known as the jobs report, for November will be released by the US Labour Department.
Investors will be parsing this report to get a better handle on estimating when the Federal Reserve will start winding down its massive $85 billion a month bond-buying programme.
The broad expectation is that the US economy will have added a net 180,000 jobs in November, lower than October’s healthy 204,000. The unemployment rate is also expected to slide to 7.2% from 7.3% in November.
Earlier in the week, a leading indicator of job creation, the ADP report, showed a surprisingly healthy addition of 215,000 private-sector jobs in November. But don’t read too much in that: the indicator tends to frequently overshoot or undershoot the Labour Department’s figure, which is the real deal for investors.
Another positive surprise came in the form of third-quarter GDP growth of 3.6%, the quickest rate in a year and a half. However, much of those gains were due to a heavy increase in inventories – goods produced but not sold.
As manufacturers try to work off the excess inventories, production typically slows down in subsequent quarters. It’s possible that since the US holiday season kicked off to a disappointing start, the fourth quarter could see lower economic activity.
Indeed, such growth is unsustainable because it is based on short-term business phenomenon, not higher consumer spending or fixed investment by businesses.
Good third-quarter GDP growth notwithstanding, the big question on everyone’s minds is the state of the jobs market.
If today’s jobs report matches or exceeds expectations, will it prompt the Fed to announce that it will start tapering (reducing) its monetary stimulus as early as this month? (The next meeting of the American central bank is on December 17-18.)
Probably not, because four months of positive data on jobs growth, and two quarters of surprisingly good GDP growth (with less benign finer details), might be insufficient for the Fed to judge if the fragile recovery underway in the US can actually take deep roots.
In addition, it seems unlikely that Bernanke will initiate a major action such as tapering just months before a new chairperson to the Federal Reserve, Janet Yellen, comes in.
Yellen is a known advocate of keeping monetary policy loose and arguably, the decision to wind-down stimulus could be her’s, not Bernanke’s.
Our bet: the Fed will wait a few more months before taking a final call on tapering. The wind-down may start only by March/April next year.