Critical US Jobs Report Coming On Friday: What Investors Should Expect

The SPDR S&P 500 ETF Trust SPY traded higher by 0.7% on Monday ahead of a critical monthly U.S. jobs report expected out on Friday.

Economists are expecting the U.S. Labor Department to report the economy added 200,000 jobs in February, down from 517,000 jobs added in January. Economists are also projecting the U.S. unemployment rate ticked higher to 3.5% after hitting a 50-year low of 3.4% in January.

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The February jobs report came after the Federal Reserve raised interest rates by another 0.25% in early February in its ongoing battle to bring down the highest U.S. inflation in roughly 40 years. Inflation numbers disappointed to the upside in January and a tight labor market is making the Fed's fight against inflation even more difficult. U.S. wages were up 4.4% year-over-year in January.

The U.S. economy added more jobs in January than it has in any month since it added 568,000 jobs in July 2022.

Inflation Numbers: The Bureau of Economic Analysis reported a 5.4% increase in the personal consumption expenditures (PCE) price index in the month of January. That's up from a 5.3% gain in December but still well below its 2022 high of a 7% increase in June.

Core PCE inflation, which excludes volatile food and energy prices, was up 4.7% in January, above economist estimates of 4.3%. Labor Department reported the Consumer Price Index (CPI) was up 6.4% in January, down from a 2022 peak of 9.1% in June.

Investors are expecting the Federal Reserve to raise interest rates by another 0.25% later this month, but another hot jobs report could increase the chances the Fed will ramp back up to a 0.5% rate hike. The bond market is currently pricing in at least three more 0.25% rate hikes between now and June.

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Bill Adams, the chief economist for Comerica Bank, recently said economic growth is holding up better so far in 2023 than many had initially feared.

"The odds of a sudden drop-off in U.S. economic activity have lessened, with the odds of either a delayed recession or an extended period of below-trend growth a.k.a. soft landing higher. I subjectively see the odds of a recession in 2023 as about 60%, which is elevated by historical standards, and the odds of a soft landing as 40%," Adams said.

Benzinga's Take: Any big surprises in the jobs numbers on Friday could trigger some extreme stock market volatility.

The bond market is currently pricing in a 30.6% chance of a 0.5% Fed interest rate hike in March, but that percentage could rise dramatically if jobs and wage growth come in higher than expected.

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