Traditionally, the US non-farm payrolls report is one of the most important economic indicators for the US economy as well as the US dollar.  However, over the past few months, the impact of the payrolls report on the currency market has been more muted, as the market attributes the volatility of the indicator to the brutal Hurricane season.  With two months having past since Hurricane Katrina earned its rank as one of the deadliest US disasters on record, economists are predicting a more meaningful rebound in the labor market.  The big question is - Will they be right?

What is the market forecasting for the month of November?

Change in Non-farm Payrolls:  +210k  (previous 56k)
Unemployment Rate:     5.0%  (previous - 5%)
Change in Manufacturing Payrolls:        5k  (previous 12k)
Average Hourly Earnings MoM:     0.2%  (previous 0.5%)
Average Weekly Hours:      33.8    (previous: 33.8)

Of the 69 economists surveyed by Bloomberg, the range of forecast extends from a low of 145k to a high of 350k.  This is a bit narrower than we have seen in previous months, but with economists overestimating payrolls in four out of the past six months, the reliability of this month's forecast remains questionable.  Yet, according to supporting data released over the past few weeks, we think that the release could actually come in the ballpark of the consensus forecast this time.

Here's how the data stacks up:

Fed's Beige Book Shows Continued Optimism - According to the Beige Book, various Fed districts have reported that the labor market remains tight.  More specifically, the Fed said that "several districts reported signs of tightening in labor markets and some difficulty in finding workers for certain occupations." They also added that "District reports indicated modest overall upward pressures on wages."  So from the front line, the labor market is improving, which means that we should at least 56k jobs added onto the economy.  Tack on an 18k boost from the end of the Boeing strikes and we a should see at least see a 75k contribution from these two factors. 

Consumers are Happy - Surprisingly, consumer confidence was very strong in the month of November, which reached the highest level since August. Any fears of rising energy bills in the winter season have clearly been pushed to the back of the minds of traders.  Although lower gasoline prices are sure to have played a role in the improved confidence, we believe that an improvement in the job outlook was also a major contributor. 

Jobless Claims Improving - Claims have been improving and are on a downtrend trend.  In the month of November, the four week averages of claims were 322k compared to 350k in October and 404k in September.
Continuing claims have also been gradually declining which combined with some of the other reports, confirms that the outlook for jobs has been improving. 

Improving Employment Conditions in Manufacturing Sector - The employment component of the ISM survey advanced modestly from 55.0 to 56.6, the fifth consecutive rise.  Meanwhile the employment indices of the Philly Fed and Empire State surveys also increased.  The only region to report a slowdown in the expansion of the employment component was in Chicago. 

Monster Employment Index at Record High - The Monster online job index rose to a record high at 149 in November, surpassing the prior record from October at 143.  Although this indicator has not been very reliable over the past few months, it is certainly encouraging that it confirms the other indicators.

Dollar Bulls Have More Tolerance than Bears

So based upon reports that have already been released, the payrolls number should be strong.  With the market already cautiously optimistic, the dollar could easily extend its rally on a exceptionally good number.  On the flipside, in the case that we see payrolls come in below 150k, today's gains could be nothing more than a distant memory.  Even though the forecast is for 210k, we believe that the market has more tolerance for a bad number than we would actually think.  This was exactly what we saw last month, when payrolls were close to 100k off forecast.  The primary reason why dollar bulls have a higher pain threshold than dollar bears is because they know that even if payrolls come in poorly, the Fed will still continue raising interest rates. 

Kathy Lien is the Chief Currency Strategist at FXCM.