Friday’s jobs report is a wildcard with economists’ estimates all over the map

The economy is expected to have added about 845,000 payrolls in July, according to the Dow Jones consensus estimate, as the US workforce is gradually rebuilding after large job losses induced by the pandemic.

But the uncertainties of Covid, which are once again spreading at a rapid pace, have become a wildcard for the job market, as it is for the economy at large. The rate of new infections in the United States is approaching 100,000 a day, faster than last summer, when vaccines were not widely available.

Wall Street’s forecast is broad for the July Jobs Report, which is released Friday at 8:30 a.m. ET. Wilmington Trust economists, for example, expect just 350,000 salaries, while Jefferies economists predict 1.2 million jobs have been created.

“The range is from 1.2 million to 350,000. It just tells you that there is very little confidence in those numbers,” said Michael Schumacher, director of pricing strategy for Wells Fargo.

Job growth has fallen short of earlier expectations of economists, some of whom predicted months of million-plus gains this spring and summer. Instead, employers are grappling with vacancies and the situation isn’t expected to improve much before schools reopen and extended benefits expire in September.

The fast-spreading delta variant of Covid may not have had an impact on the July report, but economists say it could slow the rate of growth of the economy and impact jobs , if people fear moving back into the economy, new restrictions are put in place, or schools would have to close again.

Jobs data is also central to the Fed’s decision on when to slow down its bond purchases, the first step towards canceling its accommodative policies and a precursor to interest rate hikes. Fed Chairman Jerome Powell said last week he would like to see some solid jobs reports before the Fed starts cutting its $ 120 billion a month purchases of Treasuries and securities mortgage.

“We’re not going to know much about the labor market balance until the jobs report is released in October,” Schumacher said.

The unemployment rate is expected to have fallen to 5.7% from 5.9% in June, according to Dow Jones. Average hourly wages are expected to have increased 0.3% month over month, or 3.9% year over year. There were 850,000 jobs added in June.

“The reason I have such a high forecast for July is that we have lost additional unemployment benefits in 25 states and claims in those states have declined sharply,” said Aneta Markowska, chief financial economist at Jefferies . She also said that there was usually a sharp seasonal drop in July, and that might not show up this year.

More than 22.3 million Americans were laid off in March and April 2020 as the economy came to a screeching halt. In June, the total employment level was still 7.13 million lower than in February 2020.

“I was looking for a pretty healthy number, between 850,000 and 900,000, and a drop in the unemployment rate to around 5.7%,” said Kathy Jones, chief fixed income strategist at Charles Schwab. “The main reason we’re expecting a fairly large number is that we expect some of the education jobs to come back. July is a bit early, but we’ll see some of those numbers. That could add up to around 400. 000. The seasonal adjustment will probably amplify that a bit too. “.

Jones said she expected hiring to be strong for a few more months.

“We expected the period July, August, September to be strong enough between the reopening, the reopening of schools … the resumption of jobs following the American rescue plan. This should all contribute to a pretty strong July, August, September number set, “she said.” Obviously the delta variant is the wild card. “

According to Johns Hopkins University, the United States is reporting a seven-day average of nearly 94,000 new cases as of August 4, up 48% from a week ago.

Luke Tilley, chief economist at Wilmington Trust, said his weak forecast is based on signs of slower growth he’s seeing in high-frequency data. “We think the run rate right now is around 500,000. Last month seems a little overcooked,” Tilley said.

Other recently released data shows a mixed picture of employment.

BMO fixed income strategist Ben Jeffery said the half-dozen measures he sees lean toward a strong number and the rest indicate the opposite. For example, ADP’s monthly private sector payroll report for June is low, at 330,000 jobs versus 683,000 expected. But employment in the ISM service sector rebounded to 53.8 from 49.3. Anything over 50 shows expansion.

“The [nonfarm payrolls] has always been one of the hardest numbers to predict before the pandemic, and you’re adding all the nuances to the current hiring landscape. It makes it even more difficult, ”he said.

Jeffery said the government’s investigation week for the July report, which includes July 12, may not reflect the impact of concerns about the delta variant. “Regardless of the number, he will be strongly cautioned that during the week of the investigation, the delta variant problems were not as pronounced as they currently are or as they are. will be during the August investigation period, “he said.

Because of this, he doesn’t expect much movement in the bond market unless the report is closer to one extreme end of the forecast range or another.