Could we be in for an upside payrolls surprise?

The news of a modest 169,000 gain in non-farm payrolls in August, and the downward revision that cut July's gain to only 104,000, undoubtedly played a key role in the Fed's surprising decision to leave its monthly asset purchases unchanged. That weakness looks a little odd, however, because many of the other indicators suggest that conditions in the labour market are improving, possibly even quite markedly. The upshot is that we think there may be some significant upside risk to the current consensus forecast that September's payrolls increased by a modest 177,000. Sticking our necks out (perhaps foolishly), we forecast a 220,000 gain.