Inside Markets — Jobs Preview

Consensus is only looking for non-farm payrolls of +77,500, up from July’s +73,000 surprise disappointment. In our view, a weaker-than-expected print would likely generate SPX downside at levels below +40,000 as it could reinstate expectations around the timing of a recession. This is a low probability outcome given recent improvement in flash PMI and ISM data. An upside print would be a more logical source of risk, but it would likely take something in the +175,000 – 200,000 range to move the Fed to the sideline.

We are assigning tail risk probability to this type of outcome, but lower response rates (something the BLS has recently cited) that result in poor data quality would only increase the error band. A strong payroll gain in the +110,000 – 175,000 range would increase the importance of the September 11 CPI report as the Fed has moved from ‘balanced risks’ to target the labor market. A strong payroll gain coupled with a hot CPI is a more probable outcome that could push the Fed into a pause.