Best Financial Markets Analysis Article Data from the US this week, notably the stronger-than-expected outcomes of the manufacturing and services ISM surveys, have raised the likelihood that the economy has returned to growth in the current quarter, ending the longest contraction since quarterly records started in 1947. However, the focus today is squarely on the labour market, an area of the economy that will significantly lag the wider recovery and represents the main downside risk to sustained economic growth.

The higher-than-expected outcome for private sector job losses shown in the August ADP Employer Services survey, albeit lower than last month at 298,000 compared with a decline of 360,000 in July, has tempered market speculation of another major upside surprise from today's NFP result. However, the ADP outcome ahead of the NFP report in July also came in weaker than expected but still the fall in NFP of 247,000 contrasted sharply with the median estimate of 325,000.

The upshot is that today's number could still surprise, with the range of economist forecasts between -115,000 and -365,000 at the start of the week. We look for a decline of 260,000. There will also be considerable interest in the household survey unemployment rate after it showed an unexpected fall to 9.4% in July, in part reflecting lower labour force participation. We forecast a rise to 9.6% in August, with the prospect that it will ultimately exceed 10% before easing back in 2010. The considerable slack in the labour market suggests continued downward pressure on incomes as well as inflation.

There were no surprises from the ECB yesterday, with its key interest rates left unchanged and confirmation that the rate for the next 12- month longer-term repo (on September 30) will remain the prevailing rate on the main refinancing operations.

Trevor Williams, Chief Economist, Corporate Markets

For more information: Emile Abu-Shakra Manager, Media Relations Lloyds TSB Group Media Relations Tel 020 7356 1878 http://www.lloydstsbcorporatemarkets.com/

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