The stakes couldn't be higher for the August employment report, even though the month has typically been cursed by disappointment.
For Federal Reserve officials, who are trying to gauge the U.S. economy's prospects as they consider raising interest rates in less than two weeks, have already been thrown a curve ball — global economic malaise and reeling financial markets.
The final monthly report on the American job market before the Fed's September policy meeting has the potential to muddy the waters even more. Economists have overestimated the August payroll prints over the past four years by an average of about 50,000.
Here's what economists and Fed watchers are looking for when the numbers are released at 8:30 a.m. Friday in Washington:
The headline figure, derived from a survey of employers, has been fairly solid in 2015, even in the face of inconsistent first-half economic data. Job gains averaged 211,000 through July after 260,000 a month in 2014, the best year for American hiring since 1999.
While economists are calling for an advance of about 220,000, according to the Bloomberg survey median, history shows they don't have a very good handle on August. From 2005 to 2014, forecasters have over-estimated the initial August payrolls print seven times, including in each of the past four years. What's more, the Labor Department (excluding annual and benchmark revisions) has marked up its first estimate in subsequent months in eight of the past 10 years.
Such a trend could complicate the Federal Open Market Committee's reading of the labor market and readiness to lift off from near-zero interest rates.
"If we’re aware of this `quirk' in the August data, rest assured the data-dependent FOMC is also aware of it," said Richard Moody, chief economist at Regions Financial Corp. "But, really, `Just wait – that August employment number will be revised higher' wouldn’t necessarily be the best way to get already-antsy financial markets to come to terms with a funds-rate hike."
Part of the puzzle of forecasting August payrolls is the difficulty in adjusting for annual changes in the school-year calendar, Moody said.
The unemployment rate, at 5.3 percent, is nearing the Fed's 5 percent-to-5.2 percent definition of full employment. Positive signs in the labor market since the last report indicate there may be more than enough momentum to pull July's 5.261 percent (unrounded) reading down to the Fed's range. The Bloomberg survey median calls for a 5.2 percent rate.
The "labor market differential" — the Conference Board's gauge of the share of respondents who say jobs are "plentiful" versus those describing them as "hard to get" — climbed last month to its highest level since January 2008. Jobless claims have been below 300,000 since early March, a level typically associated with improving employment conditions.
"The most important difference is that the unemployment rate is a lot lower" than a year ago, helping to nudge the Fed toward a rate increase, said Michelle Girard, chief U.S. economist at RBS Securities Inc. "For all its warts in terms of being an accurate gauge of labor-market slack, the bottom line is that it has shown continued meaningful improvement."
Sustained momentum in worker pay has remained elusive. Average hourly earnings increased 2.1 percent in the 12 months ended in July, in line with the average since the expansion started six years ago.
Here again, we may come up against a calendar quirk. The Labor Department's employer survey week ended on the 15th of the month, the day workers who receive bi-monthly checks usually get paid. The last time that happened was in November, when wages climbed 0.4 percent from a month earlier, then the strongest gain in almost two years, Morgan Stanley economist Ted Wieseman pointed out in a research note.
Financial-market turmoil, at least, probably did little to impact hiring decisions in August. The government surveys households and businesses in the week that contains the 12th of the month, so the data will reflect responses covering the Aug. 9-15 period.
Markets began their dive on Aug. 18, as investors gauged weakening in China's economy and the surprise move to depreciate the yuan: