KEY DATA: Layoffs (Over Month): +37.7%; Over Year: -24.7%/ Claims: -5,000

IN A NUTSHELL: “If the September jobs report is lacking, the lack of available workers may be the major reason.”

WHAT IT MEANS: Tomorrow is Employment Friday and today’s data point to a tightening labor market. Whether that shows up in the September data is another story, but regardless, there is every reason to think we are close to or at full employment. First, layoffs are slowing. Yes, Challenger, Gray and Christmas reported that notices were up in September from the August level. But there is no way to seasonally adjust these data as the announcements are largely random. What we do see is that third quarter layoff notices were down from second quarter as well as from 2015 levels. Importantly, the energy sector, where nearly a quarter of the notices have originated, is starting to stabilize. With oil prices breaking $50 per barrel, that trend should continue. I expect the last quarter of the year to show an even better improvement from 2015.

A second indication of how tight a market firms are dealing with comes from the continued decline in unemployment claims. We are at record lows, given the size of the workforce, as the inability to find qualified workers is forcing firms to do almost everything (except is appears, raising wages) to hold on to their current employees.

MARKETS AND FED POLICY IMPLICATIONS: Tomorrow’s employment numbers have the potential to create a lot of confusion. First, it is totally unclear what should be considered a strong number. Many economists are coming to the belief that given the low unemployment rate, job gains above 150,000 would be really good, while really strong would be above 200,000. That seems odd since we have averaged about 200,000 per month for the past five years. But if firms cannot find qualified workers and/or are unwilling to pay up to get them, hiring will be sluggish. Gone are the days that you just advertise an opening and presto, a surfeit of qualified applicants show up at your door (or your inbox). While HR heads understand that reality, CEOs and CFOs don’t seem to want to accept it. They still ask why should they pay for new workers. Duh, because you cannot get quality workers these days without getting them to change jobs and they will not do that unless there is a clear financial advantage to move. That said, given the surprisingly soft private sector employment increase in August, we could see businesses adding close to 200,000 new positions. That would be a great number, no matter what the headline says. As for the unemployment rate, it’s a toss up whether there is a decline to 4.8% or the rate remains at 4.9%. The unemployment rate normally falls slowly when we are at or below full employment, as fewer positions are filled but discouraged workers come back into the market. Indeed, it is not unusual for it to rise in any given month if the labor force has one of its periodic surges. As I like to say, the economic reality is in details, so focus on the factors that drove the headline numbers.