The August jobs report is coming at 8:30 a.m. ET Friday, and analysts expect it is going to come in hot with broad-based hiring across many sectors, and that may have implications on Fed policy going forward.

Investors will be watching closely, as the market worries aggressive Fed action at the FOMC meeting later this month may send the economy, which is already teetering, into a recession.

Analysts predict the report will show the economy added 318,000 jobs in August. That will be considerably short of the impressive 528,000 jobs added in July. Unemployment is expected to come in roughly flat at 3.5%, and hourly wages are predicted to be up 0.4% monthly, and 5.3% year over year.

Michael Gapen, chief U.S. economist at Bank of America said, “The view from market participants is the employment report is more important than the CPI inflation report in determining whether a 75 basis point or larger hike in September is more appropriate than a 50 basis point hike, and I think that’s the right view.”

On September 13th, we will see the other vital piece of data the Fed will consider as they mull over their policy going forward, and that is the August Consumer Price Index. CPI is expected to have dropped slightly from July’s 8.5% due to falling gasoline prices, however it is still expected to come in relatively high.

Worries about inflation and rising interest rates led investors to sell off ahead of the non-farm payroll report this week. Analysts have said however the report goes, it could be problematic, since if jobs dropped precipitously, that would be an ominous sign for the economy, and if they did not, it would be a “good news is bad news” situation, as it would trigger fears of more aggressive Fed action, and that could trigger more selling and an increase in bond yields.

Peter Boockvar, chief investment officer at Bleakley Advisory Group said, “A weak number will lead to a rally in bonds. It will lead to weakness in the dollar and that will give us a relief rally in stocks, but I don’t know how long that will last because buying stocks into the teeth of a recession hasn’t been a great strategy. I think it’s going to be a recession for some and maybe not for others.”

Fed Chair Jerome Powell exacerbated fears last week when he noted the Federal Reserve is not going to back down in its battle with inflation, and it would continue, as necessary, to raise rates until it had gotten rising prices under control.

Powell added in his Jackson Hole speech a warning to investors that the economy and jobs market are likely to feel “pain” in the course of this process. Investors are now split on whether the September meeting will entail a show of strength, by leveling a third 0.75% rate increase in a row, or if it will pare the hike back to  half-point, to bolster confidence in the markets that it will not over-react and damage the economy.

Cleveland Fed President Loretta Mester, a Fed policy-setting committee voting member, said the Fed will have to raise the key lending rate over 4% by 2023, and maintain it there until price hikes are under control.

Diane Swonk, chief economist at KPMG said, “The labor market situation has been a focus of the Fed. It’s one thing to say that unemployment is unsustainably low, and it’s another thing to say we’re going to raise unemployment. They mean the same thing. … Pain in the labor market is raising unemployment.”

Swonk noted that although everyone is focused on it, the August jobs report tends to be misleading. She pointed out, “August tends to be the lowest response rate for the payroll survey of any month of the year, which makes it subject to some of the largest revisions. This number is likely to get revised a lot. It’s a number you have to take with a little bit of a grain of salt.”

Swonk also noted, there could also be some degree of labor hoarding, as companies hang on to workers they might otherwise let go, due to the difficulty in finding workers today.

Swonk and Gapen, both expect to see negative jobs numbers by early next year, as the Fed’s policy begins to fully take hold. But for now, the jobs market appears incredibly resilient. The Bureau of Labor Statistics reported this week that there were 11.2 million job openings, which was 1 million more than predicted.

Tom Gimbel, founder of LaSalle Networks, a recruiting firm, said despite high profile reports of layoffs in the tech sector, he has yet to see any effect in his work.

He said, “We’re seeing a big uptick in technology…It continues to grow. The biggest numbers tend to be in cybersecurity. I’m seeing a 20% increase year over year in the number of job openings. I’m seeing an increase of 15% in project management. Companies are still doing special projects within the tech space.” He also noted sales jobs are up 10% since last year.

Summing things up, Gapen said, “We just heard the message again from Jackson Hole, the Fed is serious and we’re going to get inflation under control. The labor market is clearly out of balance. The stronger it is across the board, the more Fed tightening it’s going to bring.”

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