Covering: Attention turns to Friday’s jobs report

As anticipation for the Federal Reserve’s September rate hike continues to grow, all eyes are on today’s jobs report. As a pre-emptive result, overseas markets dropped two percent Friday morning.

Nelson Schwartz of The New York Times pointed out the three main things to watch for in the report:

Here is what to watch for:

• Will it be enough to prompt the Fed to act?

Many watchers of the Federal Reserve had expected the central bank to begin its long-expected move to raise interest rates from near zero when officials next meet in two weeks. But the recent market volatility has made things much less certain. A strong number might tip the balance.

• Wages, wages, wages

Although the big headlines will initially focus on the number of jobs added last month, the question of whether average hourly earnings are showing signs of life is also crucial. Despite the falling unemployment rate, and fairly robust hiring this year, wages have been stagnant.

Wall Street is looking for a 0.2 percentage point increase — a bigger jump than that might suggest the labor market is tightening and workers are finally seeing the benefits. It could also help convince Fed policy-makers that the economy is strong enough to withstand a rate increase.

• Trouble in August?

For seasonal factors, not fundamental economic ones, the Labor Department’s August jobs report has often come in weaker than expected, at least initially.

Over the last five years, according to Goldman Sachs, the government has reported an average gain of 30,000 fewer jobs for the month than economists had expected. (These August figures were ultimately revised upward by an average of 79,000.)

In all other months, a gain of less than 200,000 jobs might be considered lackluster at best, weak at worst. But given August’s history of big upward revisions, Fed officials and investors might be inclined to take a more forgiving view of the data this time around.

David Harrison of The Wall Street Journal added two things to watch out for as the numbers are released:

4- Bringing Workers Back Into the Fold

Many Americans who dropped out of the workforce in the aftermath of the recession have yet to make their way back. In July, 62.6% of those ages 16 and over were either working or looking for work, the lowest level since 1977. While some of that drop is due to the retirement of baby boomers, it’s clear many people are still sitting on the sidelines.

5- Impact of Oil Prices

The oil industry has been hammered by this summer’s low prices. Labor Department data show a net loss of 7,700 oil and gas extraction jobs since October. It remains to be seen how many more jobs will be cut before the oil industry stabilizes. But low energy prices have benefited other sectors such as manufacturing and construction, both of which posted gains in July.

Christopher Rugaber of The Associated Press broke down why the Fed might finally raise interest rates following the report:

Many economists have long predicted that the Fed would lift rates in September. But the turbulence in global stock markets, a U.S. inflation rate persistently below the Fed’s target level and a sharp economic slowdown in China have scrambled their assumptions. Most economists say the Fed will at least want markets to stabilize before they raise rates.

Still, after three years of solid job growth that has put nearly 8 million Americans back to work, Fed officials are probably satisfied with the job market’s progress.

Eric Rosengren, president of the Federal Reserve Bank of Boston, said Tuesday that the Fed’s desire to see further improvement in hiring “has largely been met.”

Likewise, David Joy, chief market strategist at Ameriprise, said, “I think they feel pretty good about where the job market is.”

Once the Fed begins raising borrowing rates, higher rates are likely to eventually ripple through the economy. Americans could face higher costs for mortgages and other loans, though the increases could be modest and gradual.

But Joy thinks the Fed may still hold off on a rate rise at its next meeting because of China’s weakening economy, which has weakened growth in countries that supply it with raw materials, such as Brazil and Australia.

A stumbling global economy and stronger dollar, which makes U.S. exports costlier overseas, could slow growth for the next 12 months, according to Goldman Sachs. In part, that’s why Joy thinks a disappointing jobs report could lead the Fed to delay a rate hike, particularly if stock prices plummeted in response.

Joseph LaVorgna, chief U.S. economist at Deutsche Bank, notes that job reports for August typically fall short of economists’ expectations. The elimination of millions of summer jobs can complicate the data.

In case of a subpar August jobs report, it might be hard for the Fed to conclude that the economy was strong enough to withstand a rate hike, he said.

“The reality is that people tend to focus on the latest number, and not the trend,” LaVorgna said.

The Associated Press’ Youkyung Lee covered the drop in global stock markets ahead of the report:

Global stock markets were lower Friday with Tokyo’s index down 2 percent as jitters mounted before the release of the monthly U.S. jobs report and the resumption next week of trading on Chinese stock markets.

KEEPING SCORE: European stocks opened sharply lower. Britain’s FTSE 100 dropped 1.7 percent to 6,097.27 and France’s CAC 40 sank 1.7 percent to 4,573.23. Germany’s DAX fell 1.7 percent to 10,137.53. Futures pointed to a downbeat day for Wall Street. S&P 500 futures dropped 0.9 percent and Dow futures shed 1 percent.

US JOBS: The U.S. government issues the August jobs report on Friday, which could play a big role in whether the Federal Reserve decides to raise interest rates at its Sept. 16-17 meeting. Analysts are forecasting that employers produced a healthy increase of 220,000 jobs and that the unemployment rate fell to 5.2 percent. Record low interest rates since the 2008 financial crisis have been a boon for stock markets so investors await the jobs data and the Fed meeting with trepidation. In recent weeks, market expectations of a September rate hike have dimmed because of signs of weakness in the global economy.

ANALYST’S TAKE: The upcoming jobs report “may dictate some trader caution today,” said Ric Spooner, chief market analyst at CMC Markets in Sydney. “The major risk appears to be if the outcome is a strong jobs number,” he said in a market commentary. “Given that the Fed is comfortable with the broad trend of job growth, a strong number would improve the atmosphere for a September rate hike.”