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Dow Futures Skittish Ahead of NFP Report. Here’s Why You Should Take It With a Grain of Salt

Last Updated September 23, 2020 1:06 PM
Sam Bourgi
Last Updated September 23, 2020 1:06 PM

Futures on the Dow and broader U.S. stock market drifted lower in afterhours trading Friday, as investors zeroed in on a critical jobs report scheduled for 8:30 a.m. ET.

Dow Futures Climb; S&P 500, Nasdaq Futures Follow

Futures contracts for all three major U.S. indexes edged lower into the early Asian session. Dow Jones Industrial Average (DJA) futures fell 0.1%. Futures on the S&P 500 Index and Nasdaq 100 also dropped 0.1%.

Dow futures
Dow Jones futures edge lower in overnight trading as attention shifts back to economic data. | Chart: Bloomberg

The U.S. stock market staged a sizable relief rally in Thursday’s session, as traders bought the dip of a 500-point selloff in the Dow. A gauge of U.S. services activity weakened much more than expected in September; rather than sell on the news, traders took the report as a positive sign that the Federal Reserve will continue to lower interest rates.

Nonfarm Payrolls Eyed

US jobs market
The U.S. jobs market is adding fewer workers in 2019 as it meets the traditional definition of full employment. | Image: Drew Angerer / GETTY IMAGES NORTH AMERICA / AFP

Following years of impressive growth, the U.S. labor market is showing signs of stabilizing under President Trump. The broad cooling trend is forecast to continue in September as unemployment hovers near five-decade lows.

The Labor Department’s official jobs report on Friday is expected to show the creation of 145,000 nonfarm positions in September. That follows a net gain of 135,000 in August.

The jobless rate for September likely held steady at 3.7%.

Wage growth also likely moderated following better than expected growth during August. Average hourly earnings are forecast to rise 0.3% on month and 3.2% annually.

Earlier this week, payrolls processor ADP Inc. said private-sector employers added just 135,000 positions in September, with primary industries still reeling from trade-related uncertainty.

Labor Numbers in Perspective

It’s difficult to take the official nonfarm payrolls numbers at face value because of how dramatically hiring numbers are revised retroactively. Beyond that, the official data present an incomplete picture of the labor market – one that could easily be manipulated.

For example, the unemployment rate doesn’t factor the percentage of working-age Americans not employed and unwilling to search for work. In the official labor force survey, respondents need to specify that they are not employed and actively searching for work for them to be classified as unemployed.

That’s why the labor force participation rate is an equally important measure of the jobs market. This number tells us how many Americans are either employed or unemployed but actively seeking work. It usually hovers between 62% and 63% of the working-age population. The rest have dropped out of the jobs market for some reason or another.

Then there’s the fact that employment has increased at a torrid pace since the financial crisis while wages have barely kept up with inflation. This is another indication of a weak labor market since plentiful jobs say nothing about the quality of work being created.

Such trends cut across presidential administrations and party lines and partly reflect the evaporation of manufacturing in the U.S. Nations that don’t produce inevitably become net consumers. In the case of the U.S., consumption accounts for more than two-thirds of gross domestic product, with manufacturing at a paltry 12%.