August jobs report critical to investors, politicians

Slow pace of hiring undermines confidence in markets, Washington

By Jeffry Bartash, MarketWatch

WASHINGTON (MarketWatch) -- Where are the jobs? That's what everyone wants to know -- from Main Street to Wall Street to 1600 Pennsylvania Ave., where President Barack Obama resides.

The government will present another snapshot of the labor market Friday when it reports employment data for August. The picture isn't looking any prettier.

Economists surveyed by MarketWatch forecast the U.S. gained a meager 49,000 private-sector jobs after factoring out the layoff of temporary Census workers. The jobless rate could tick up to 9.6% from 9.5%, a number that would look far worse if it included the people who are too discouraged to look for work.

Also on tap next week: data on consumer spending and the health of the manufacturing sector. Based on MarketWatch's survey of economists, consumer spending likely rose 0.3% in August, while the Institute for Supply Management's survey of manufacturers probably fell to 53.5% from 55.5%. See MarketWatch's Economic Calendar.

MarketWatch consensus

See economic calendar

date	report	Consensus	previous
Aug. 30	Personal income	0.3%	0.0%
Aug. 30	Consumer spending	0.3%	0.0%
Aug. 31	Chicago PMI	57.0%	62.3%
Aug. 31	Consumer confidence	50.0	50.4
Sept. 1	ISM	53.5%	55.5%
Sept. 1	Construction spending	-0.6%	0.1%
Sept. 1	Motor vehicle sales	11.5 mln	11.5 mln
Sept. 2	Jobless claims	470,000	473,000
Sept. 2	Productivity	-2.0%	-1.0%
Sept. 2	Factory orders	0.4%	-1.2%
Sept. 2	Pending home sales	-1.3%	-2.6%
Sept. 3	Nonfarm payrolls	-105,000	-131,000
Sept. 3	Private-sector payrolls	30,000	71,000
Sept. 3	Unemployment rate	9.6%	9.5%
Sept. 3	Average hourly earnings	0.1%	0.2%
Sept. 3	ISM services	53.2%	54.3%

97017

The consumer-spending report is to be issued Monday, while ISM data comes out Wednesday. Those surveys are merely an appetizer, however, for the crucial jobs report on Friday.

While any hiring is better than none, the U.S. needs to add almost 150,000 jobs a month to absorb the natural increase in the working population and drive down the unemployment rate. Some 8.2 million Americans lost their jobs during the height of the recession in 2008 and 2009. What's far from clear is who will do the hiring.

"What is going to be the source of growth that pushes the economy forward?" asked Jim Baird, chief investment strategist of Plante Moran Financial Advisors in Michigan. "Unfortunately, that's the million-dollar question."

Battle over jobs

So far this year, the economy has added an average of 90,000 private-sector jobs a month, with government payrolls basically flat. If those trends hold, the U.S. would be on track to add just over a million jobs in 2010, calculates economist Brian Levitt of Oppenheimer Funds.

Even hitting that number is by no means certain. The economy appears to have hit another soft patch, based on the latest data, so it's hard to figure out where the new jobs will come from. Read about slower growth in the second quarter.

 

"The prospect of high unemployment for a long period of time remains a central concern of policy," Federal Reserve Chairman Ben Bernanke said in a major address this week. See full story on Bernanke's speech.

No kidding. In Washington, Republicans have repeatedly attacked Obama's policies, including the massive $814 billion stimulus and the overhaul of the health-care and financial markets. They say his policies not only failed to boost the economy but caused so much uncertainty that businesses are afraid to hire.

Several prominent chief executives from companies such as Verizon Communications Inc. (NYSE:VZ) and Intel Corp. (NASDAQ:INTC) have weighed in with similar complaints. Intel CEO Paul Otellini, who's normally measured in his public comments, said this week that the uncertainty is the worst he's ever seen. "I think this [economic-policy team] does not understand what it takes to create jobs," he said.

The version of Adobe Flash Player required to view this interactive has not been found. To enjoy our complete interactive experience, please download a free copy of the latest version of Adobe Flash Player here.

U.S. week ahead: Consumer snapshots

Summer ends with economic reports focusing on consumer confidences, spending and sentiment; payrolls and unemployment; and monthly auto sales. Apple's expected to introduce new iPods. MarketWatch's Rex Crum reports.

Although Bernanke has tried to walk a fine line politically, he suggested that executives like Otellini might have a point. "Firms are reluctant to add permanent employees, citing slow growth of sales and elevated economic and regulatory uncertainty," he said.

Business leaders, of course, have their own nests to feather. They always prefer lower taxes, fewer regulations and less government spending -- unless it benefits them. Yet the Obama administration's policies clearly have not worked out as the president's economists intended.

The White House, for example, famously predicted in 2009 that its stimulus plan would keep the unemployment rate from topping 8%. Instead it shot up to a 27-year high of 10.1% before leveling off -- mainly because people dropped out of the workforce.

Even some Democrats, such as liberal stalwart Barney Frank of Massachusetts, now say it was "dumb" for the Obama administration to try to forecast the jobless rate. Read Rep. Frank's take on unemployment.

Future is cloudy

The latest slowdown has only encouraged Republican assaults and put Democrats on the defensive as the fall elections approach. Democrats are in grave danger of losing control of one or both chambers of Congress, based on current polls.

Yet a better-than-expected jobs report for August and September could give Obama and fellow Democrats ammo to claim their policies are working. In recent appearances, the president has argued the economy was in such bad shape when he took over that a quick recovery was impossible. He has insisted his policies have laid the groundwork for a prosperous future.

Most economists nevertheless have said they believe prospects for short-term improvement are dim. Even if corporate complaints about regulatory uncertainty are valid, a bigger source of their hesitation to hire is a lack of sufficient demand for their products.

Businesses have cut back on spending after rebuilding inventories early this year. And consumers are still tapped out after racking up large debts before the recession. Savings have soared as they seek to protect themselves financially in case they lose their jobs. See related story on second-quarter economic growth.

Nor are sharply increased exports -- an avowed goal of the Obama administration -- seen as a savior. Every country in the world is trying to use exports to stimulate growth, but the problem again is finding buyers. "If we are counting on exports, we are likely to be disappointed," Baird said. "You are not seeing robust growth elsewhere in the developed world."

Still, economists say it's hard to see the economy getting much worse barring another major domestic or global crisis. Government spending on so-called automatic stabilizers such as jobless benefits have helped steady the economy, and most businesses are no longer orchestrating mass layoffs.

"There is not a lot of impetus for a double-dip recession," Levitt said.