PRINTMarket Update -- Economic Comment
September 05, 2007
Employment Report Fridays—typically the first Friday of each month—are always of key interest to financial market participants, but this week's report could have an even greater impact. These data will play an important role in shaping the FOMC's view on the economy and whether or not a lower federal funds rate is required. The labor market is the pillar that is holding the economy upright in the midst of the housing market correction. Without this pillar, economic growth could disintegrate.
August news on the labor market has been a bit grim: weekly jobless claims increased by about 25,000 during the month; Challenger layoffs were reported to be up 22% from a year ago; the Hudson Employment Index fell a huge 6.6 points to 99.2, and the ADP private-sector employment measure increased by a weak 38,000 jobs. If Friday's payroll report shows similar weakness, say nonfarm payrolls rise just 75,000 or fewer and the unemployment rate climbs to 4.7% or higher, then the Fed should respond with a federal funds rate cut at the September FOMC meeting. If the employment report bucks the trend and comes in strong, the Fed will have cover to wait for more data before reducing this main policy rate.
We continue to expect the Fed to reduce the funds rate by 25 basis points at the September FOMC meeting and see additional cuts forthcoming.
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