Job Data May Determine Fed’s Next Step. Here Is What to Expect.

Tiffany Wilding and Allison Boxer, economists at asset manager PIMCO, identify dangers, explaining their projections for 300,000 new jobs last month in a research report. They highlight variables such as seasonal retail support in February and the gap between a wave of layoff announcements in January — which they expect to take effect in March. Wilding and Boxer also point to a broad trend of resilience in recent unemployment claims. They stated that they believe consensus has upside risks.

But data released Thursday showed that tight labor market conditions might be easing. The Labor Department reported Thursday that initial jobless claims rose to 211,000 in the week ended March 4, the highest level since Christmas. Economists had expected claims to rise to 196,000.

The release of the payroll data on Friday hit a market that is increasingly worried that the economy will continue to be too hot for the Fed's liking. As a result, the S&P 500 had fallen 4.5% since February 2, when the January jobs report caused traders to reconsider the view that the Fed is moving away from its aggressive monetary policy.

Fed Chairman Jerome Powell was clear in testimony before Congress this week the central bank will be dependent on data, emphasizing the jury is out over the next rate decision — even as it is anticipated they will go higher than once thought.

According to the CME FedWatch Tool, futures markets were pricing in a 62% possibility of a 50-basis-point raise on March 22 as of Thursday, up from a 31% chance a week earlier. Earlier in the week, the odds of a half-point hike were considerably greater, hovering above 80% on Wednesday. Shares fell after SVB Financial Group (SIVB) liquidated securities from its portfolio for a $1.8 billion loss, sparking a selloff in bank equities and heightening fears about the impact of increased interest rates.

All of this means that the employment data, along with the consumer price index reading on Tuesday, arrives at a critical time.

After a turbulent week, investors will prefer to see nonfarm payrolls and profit growth that are lower than expected. A greater unemployment rate might also assist.

According to Tom Essaye, the founder of Sevens Report Research, some analysts will focus on wage data, which is theoretically the most crucial element of the report for the Fed because it attempts to reestablish more equilibrium in the labor market.

Yet, in the end, if job growth is high and wages fall, given other inflation indicators, the Fed will remain hawkish.

Last month is not the only thing that is in the spotlight, as the revision may also affect January's data, which some analysts attribute to factors such as strikes and even unseasonably warm weather.

Regardless, Friday promises to give investors something to think about.