On Friday morning the Bureau of Labor Statistics is expected to announce another strong jobs report, with economists expecting 225,000 jobs were added to the U.S. economy last month.
This report would build on January's blowout report that showed 517,000 jobs were created in the first month of the year.
Economists and investors alike will be looking for signs that the breakneck pace of Federal Reserve rate hikes is starting to slow the hottest labor market in five decades. Especially after Fed chair Jay Powell just doubled-down on his hawkish message to Congress that there remains a ways to go on the inflation-fighting front.
The bond market seems to believe Powell, ratcheting up expectations for the Fed to hike rates by 50 basis points instead of 25 basis points at its next meeting in under two weeks.
But Wall Street is clinging to its expectation that the unemployment rate holds steady at 3.4% — the lowest level since 1969 — without a hint of recession fears. Intelligent investors will be forgiven for asking — what gives?
Thomas Kennedy, J.P. Morgan Global Wealth Management chief investment strategist, joined Yahoo Finance Live on Thursday to break down expectations coming into the monthly jobs report.
Kennedy notes despite the housing slowdown, jobs are still relatively plentiful for the time being. However, that's about to change.
"In the housing sector, the slowdown has been the fastest we have ever seen. In development of new properties, completions of jobs are now higher than starts," he said. "Imagine if you run a construction business. If you complete ten jobs, you only start eight. There's a team that needs to be laid off."
Historically, construction jobs are the canary in the coal mine in the U.S. labor market.
Over the last 11 recessions going back seven decades, growth in construction jobs has turned negative — meaning job losses have appeared in the sector — one month into the recession.
On average, construction job losses lead overall job losses by nearly half a year, though there are exceptions. After the dot-com bust in 2001, total U.S. payrolls finally turned negative five months into the 2001 recession. Construction flipped three months later.
Ironically, any negative surprises in the labor market stats revealed Friday will probably be a boon for stocks, as investors will likely view any weakness as a necessary prelude to an eventual Fed pivot.
Indeed, the weekly jobless claims report from the Department of Labor Thursday morning showed 211,000 initial jobless claims filed — more than the 195,000 expected by the Street.
Stock futures rallied strongly on the weaker-than-expected numbers.
Friday morning should be no different. Bad is good, and good is bad — at least for a while.
Click here for the latest stock market news and in-depth analysis, including events that move stocks
Read the latest financial and business news from Yahoo Finance