Friday's jobs report is a wild card with economists' estimates all over the map

• The economy added 845,000 jobs in July, about the same as June's job growth, according to economists polled by Dow Jones.
• Economists mostly expect strong growth for the next couple of months, but the delta variant of Covid has become a wild card for both the labor market and economy.
• Uncertainty shows up in the wide range of forecasts for July jobs – from 350,000 to 1.2 million.

The economy is expected to have added about 845,000 payrolls in July, according to Dow Jones consensus estimate, as America's workforce gradually rebuilds from sharp pandemic-induced job losses.

But the uncertainties of Covid, spreading again at a rapid pace, has become a wild card for the labor market, just as it has for the broader economy. The rate of new infections in the U.S. is edging toward 100,000 per day, faster than last summer when there were no widely available vaccines.

Wall Street forecasts are wide-ranging for the July employment report, which is released Friday at 8:30 a.m. ET. Wilmington Trust economists, for instance, expect just 350,000 payrolls, while Jefferies economists predict 1.2 million jobs were added.

"The range is 1.2 million to 350,000. That just tells you there's very little confidence in those numbers," said Michael Schumacher, director of rates strategy for Wells Fargo.

Job growth has not met the earlier expectations of economists, some of whom were predicting multiple months of million plus gains this spring and summer. Instead, employers are struggling with unfilled openings, and the situation is not expected to much improve until schools reopen and extended employment benefits expire in September.

The rapidly spreading delta variant of Covid may not have impacted July's report, but economists say it could slow the economy's growth rate and impact employment, if individuals become fearful of moving about in the economy again, new restrictions are put in place, or schools should shut down again.

The jobs data is also key to the Fed's decision on when it will move to slow down its bond buying, the first step towards rolling back its easy policies and a precursor to interest rate hikes. Fed Chairman Jerome Powell said last week he would like to see a few strong jobs reports before the Fed begins to trim its $120 billion a month purchases of Treasury and mortgage securities.

"We're not going to know much about the equilibrium in the labor market until the jobs report comes out in October," said Schumacher.

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 risen by 0.3% month over month, or 3.9% on a year over year basis. There were 850,000 jobs added in June.

"The reason I have such a high forecast for July is we lost supplemental unemployment benefits in 25 states and claims in those states declined sharply," said Jefferies chief financial economist Aneta Markowska. She also said there is typically a big seasonal decline in July, and that may not show up this year.

More than 22.3 million Americans were laid off in March and April of 2020 as the economy abruptly shutdown. As of June, the total employment level was still 7.13 million below the February, 2020 level.

"I've been looking for a pretty healthy number, around 850,000 to 900,000, and a drop in the unemployment rate to around 5.7%," said Kathy Jones, Charles Schwab chief fixed income strategist. "The primary reason we're expecting a pretty big number is we're expecting some of the education jobs are coming back. July's a little early but we'll see some of those numbers. That could add 400,000 or so. The seasonal adjustment is probably going to amplify that a little bit as well.".

Jones said she has expected hiring to be strong for another couple of months.

"We've been looking for the July, August, September period to be pretty strong between the reopening, reopening of schools…the recovery of jobs as a result of the American rescue plan. All that should contribute to a pretty strong July, August, September set of numbers," she said. "Obviously, the delta variant is the wild card."

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

Luke Tilley, chief economist at Wilmington Trust, said his low forecast is based on signs of slower growth he is seeing in high frequency data. "We think the run rate right now is about 500,000. Last month seems a little bit overcooked," said Tilley.

Other data released recently shows a mixed picture for employment.

Ben Jeffery, fixed income strategist at BMO, said half the dozen measures he watches lean toward a strong number and the others indicate otherwise. For instance, ADP's monthly private sector payroll report for June came in weak, at 330,000 jobs versus an expected 683,000. But ISM service sector employment rebounded to 53.8 from 49.3. Anything above 50 shows expansion.

"The [nonfarm payrolls] was always one of the most difficult numbers to forecast before the pandemic, and you add all the nuances of the current hiring landscape. That makes it even more challenging," he said.

Jeffery said the government's survey week for the July report, which includes July 12, may not reflect the impact of concerns about the delta variant. "Whatever the number is, it's going to be heavily caveated by the fact that during the survey week, the delta variant concerns weren't as pronounced as they are right now or as they will be during the August survey period," he said.

For that reason, he does not expect much movement in the bond market unless the report is closer to one extreme end of the forecast range or other.

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