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Jobs market holds clues to Fed’s tapering timeline

A job seeker, centre, is pictured at a career fair in Denver on April 9, 2013.

Rick Wilking/Reuters

It's not just the U.S. jobless rate that will be important this Friday.

Also watch the employment rate if you really want to get inside the heads of the decision-makers at the U.S. Federal Reserve Board, BMO Nesbitt Burns says.

The U.S. central bank is closely watching the jobs market, as are investors because of what it could mean to the Fed's timeline for "tapering," when it begins to pull back on its huge asset-buying program known as quantitative easing, or QE.

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Investors, anxious because of what tapering could mean to the economy and the markets, got a surprise at the last Fed meeting earlier this month, when policy makers were expected to cut monthly asset purchases from the current $85-billion (U.S.) a month.

The Fed decided to hold back, buoying markets.

Economists expect Friday's labour market report to show that about 180,000 jobs were created in September, with the unemployment rate holding at 7.3 per cent.

"While this is modestly higher than the disappointing pace recorded the month before, it will nonetheless continue to underscore the subdued tone in economic activity more generally in recent months relative to the buoyancy seen earlier this year," said economists at Toronto-Dominion Bank.

Senior economist Sal Guatieri of BMO Nesbitt Burns noted that job gains over the past three months have slowed to an average 148,000 compared with almost 200,000 in the first five months of 2013.

So an increase of 180,000 in September, as projected, would be getting back to earlier levels.

But the jobless rate is also affected by whether or not people are looking for work. If they're not, they're not counted as being part of the labour force.

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"The risks are skewed toward a further decline in the jobless rate, as discouraged workers show few signs of returning to the labour force and the eldest baby boomers are nearly retirement age," Mr. Guatieri said.

"For this reason, the Fed is closely watching the employment rate to gauge labour market progress," he added.

"It has hovered near quarter-century lows for the past four years and has held steady this year at 58.6 per cent. Until it moves higher, the Fed will be reluctant to taper its asset purchases."

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