Peter D’Antonio, an economist at Citigroup says “We’re looking for pretty sluggish payroll growth. This will be more of the same, what Bernanke called ‘worrisome.’ It may reflect weakness coming from abroad, weakness in manufacturing, and the hiring situation is not being helped by concerns over the fiscal cliff.

This month’s non-farm report marks the next-to-last employment figures before the November elections, in which economic issues play a key role, and of course none is greater to the US electorate than employment. Only one president, Ronald Reagan, has been re-elected since WW2 with a jobless rate above 6%. The unemployment rate has exceeded 8% since February 2009, the longest stretch in monthly records dating back to 1948.

Federal Reserve Bank of Chicago President Charles Evans has called for accommodation so long as unemployment exceeds 7% and inflation remains below 3%. On September 20^th, Fed Bank of Minneapolis President Kocherlakota said the central bank should keep rates near zero until the jobless falls below 5.5% and inflation doesn’t exceed 2.25%.

Manufacturing has been a pillar of the early stages of the recovery, but has started waning in recent months. The ISM manufacturing reading for September saw a slight improvement from August, but was still only marginally above the 50 level at 51.5. It was the first month out of the last four that manufacturing expanded.

The employment component of ISM manufacturing was actually fairly robust at 54.7 in September from 51.6 August. Whether this will be reflected in the manufacturing payrolls however remains to be seen. German manufacturing giant Siemens AG recently announced some 615 job cuts at its US factories after a “significant drop in new orders,” according to a message to employees obtained by Bloomberg.

Manufacturing payrolls are forecast to come in flat in September from -15k in August according to a Reuter’s survey.

Alternative viewpoint

Analysts at TrimTabs investment research believe the no. of new positions estimated by the US BLS may be hugely understated. They believe the US economy probably added 210,000 jobs according to their research.

TrimTabs say the economy is gaining momentum, leading to job gains in interest sensitive sectors. “We believe artificially low interest rates are boosting demand for housing, mortgage refinancing, and cars,” it says.

Their employment forecast is based on the amount of daily income tax paid to the US Treasury from all salaried employees, according to the firm. They say this gives a more accurate real-time view of job trends than the government’s estimate.

TrimTabs say however, that they don’t believe the pick-up in jobs is sustainable long-term, in large part due to extra costs related to US health care reforms that are scheduled to take effect on January 1^st.

Economic data

The employment data we’ve seen in September has presented a very mixed picture. The employment components of ISM manufacturing, Philadelphia Fed and Consumer Confidence – Jobs plentiful have been better, whilst ADP, Chicago Fed and the Consumer Confidence – not so plentiful figures have been worse. Itis, therefore, quite difficult to predict what the direction of this month’s non-farm payrolls will be. The table below illustrates the mixed picture of the employment figures over the last month:

The ECB holds a press conference following the announcement where some rationale for their decision is offered. Market participants pay close attention to the press conference, hoping to clue in on the likelihood of further rate changes. Often, the language used in the press conference holds important signals to how the ECB feels about inflation and the economy.

Howard Archer, economist at HIS global insight says “It seems highly likely that the ECB will take interest rates down from 0.75% to 0.5% in the 4^th quarter. While the ECB could act as soon as its October meeting, we lean towards the view that they will probably hold off till November.”

This viewpoint is backed up by the consensus reading of economists polled by Reuters. Only 14 of the 73 surveyed expect the ECB to cut rates at the October 4^th meeting, but a majority expect them to do so by the end of the year.

Nick Matthews, a Senior European Economist at Nomura also expects no major policy announcements at the latest meeting. “We do not expect any movement on rates as the Governing Council continues to see no urgency to cut rates again” the Economist notes. Furthermore, “while the ECB is likely to continue to expect inflation to remain in line with price stability over the policy-relevant horizon, we expect the Council to continue to stress that renewed intensification of financial market tensions could affect the balance of risks for both growth and inflation.” He notes that recent comments from within the Executive Board, have reinforced this wait-and-see attitude on rates.

ECB executive board member Coeure speaking on September 23^rd said as much when he stated that policy makers may not reduce interest rates further as confidence in the euro-area’s economic outlook improves and inflation stays high. “The jury is open as to whether there should be another rate cut,” Coeure told reporters in the West Bank City of Ramallah where he was attending a conference. “It’s not absolutely obvious that another rate cut would be necessary.”

What does the market expect?

After some fluctuation in Euribor rates at the start of the week, 3-month rates continued heading lower, hitting fresh record lows on Wednesday. Although a significant portion of the fall is due to expectations of further rate cuts, this is, generally speaking, not factored into this month’s meeting, and is more attributable to rate cuts down the line and the massive amount of excess liquidity in the banking system.