5 Things to Watch for in Friday's Jobs Report

Landing just four days before Election Day, Friday’s jobs report is sure to be a conversation piece on the campaign trail.

Economists expect payrolls to grow by 125,000 jobs in October and the unemployment rate to inch up one-tenth of a percentage point to 7.9 percent, according to a survey conducted by Reuters in advance of the official Labor Department report, which will be released at 8:30 a.m.

Although the employment report will be widely talked about, it probably won't be a game changer in the tight presidential race. Even if the number is surprising—in either direction—some political scientists argue that late-breaking economic numbers rarely alter a race.

A report showing moderate job growth would provide fodder for Republican candidate Mitt Romney’s argument that the economy is recovering too slowly, but it would also bolster President Obama’s case that the economy is, indeed, healing under his watch, if not at breakneck speed. On Thursday, Obama campaign spokeswoman Jen Psaki told reporters aboard Air Force One, “Regardless of what [the numbers] are, the president is still going to feel there’s more we need to do to help the economy recover at a faster rate, put more people back to work. As he says every day and he’ll say today, until everybody who wants a job has a job, his job is not done. And that won’t change.” 

Beyond the political messages that each of the candidates' might formulate in response to the numbers, they have a great deal of significance for the country’s economic outlook. To that end, here are five things to watch for:

1. The implications for the fiscal cliff. The Congressional Budget Office predicted in August that the economic repercussions of failure to address the combination of tax hikes and spending cuts scheduled to kick in with the new year would be severe. There have been some hints in the economic data, such as gross domestic product, that uncertainty among businesses is already putting a damper on investment. An unexpectedly weak jobs number might indicate that uncertainty is also leading firms to become more cautious in their hiring.
2. The likelihood the Federal Reserve will undertake additional stimulus. The Fed launched an open-ended round of bond-buying in September aimed at helping the labor market, and pledged to make additional asset purchases or employ other policy tools if the country’s jobs outlook doesn’t “improve substantially.” A weak jobs report could prompt the Fed to consider exploring those other options at its next policy-setting meeting in December.
3. Divergence between the household and establishment surveys. The monthly jobs report combines two surveys, conducted separately and with different sample sizes: the household survey, which is used to calculate the unemployment rate, and the establishment survey, which determines the headline payroll number. Sometimes, these diverge. In September, they did so dramatically, with payrolls showing lukewarm improvement as unemployment plunged a dramatic 0.3 percentage points. The divergence led to speculation that the White House was manipulating the data for its own political gain in the run-up to the election, a charge economists on both sides of the aisle dismissed. This false charge could be revived if the surveys again point in different directions in this politically charged preelection environment.
4. Labor-force participation rate.  If you want to understand what’s driving changes in the unemployment rate, you have to look to the labor-force participation rate, which measures the labor force—employed people as well as unemployed people who are looking for a job—as a percentage of the population. If participation goes up, the unemployment rate may also rise—and it wouldn’t necessarily be a bad thing, since it could signify more people getting back into the labor market and looking for work. If it goes down, so might unemployment, and it wouldn’t necessarily be time to cheer, even if the headline numbers show improvement.
5. Average workweek. What happens to the workweek hints at what’s to come in the labor market. That’s because employers tend to extend the workweek of their current employees before hiring additional workers. In September, this number rose by one-tenth to 34.5 hours. Economists at Deutsche Bank expect it to hold steady in October.

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