It’s been a tough week for the economy. Stocks tumbled on Wednesday following the release of a disappointing ADP jobs report. Treasury bonds slipped to their lowest yields of the year. Consumer confidence decreased; housing prices sank. Analysts’ expectations are falling fast for the Labor Department's official jobs report, which will be released on Friday morning.
“I think the general tenor of economic data over the last month or two has taken a decided turn for the worse,” said Josh Feinman, global chief economist for DB Advisors. “The recovery was never that strong to begin with, and I think it’s still laboring under headwinds from the crisis.”
Those headwinds include housing prices and households trying to balance their checkbooks. According to Feinman, they are “keeping this recovery from shifting into higher gear.” He thinks tomorrow’s report will show an increase “closer to 100,000 or so” jobs created compared with April’s addition of 244,000 jobs. Laurence Meyer, former Federal Reserve governor and economist, predicted an increase “well below 130,000,” due in part to a “fundamental loss of momentum in the U.S. economy.” A jobs number that falls short of these lowered expectations would likely cause markets to drop again.
Researchers at Deutsche Bank initially predicted an increase of 300,000 nonfarm jobs in May after April’s strong report. They revised their estimate to 160,000 on Thursday, citing that day’s jobless claims numbers, which remained above 400,000 for the eighth week in a row, as well as decreased consumer confidence and lackluster Chicago PMI, ADP job, and ISM employment numbers.
On top of the obstacles to growth created by the recession, a number of temporary factors have caused the Deutsche Bank analysts to lower their prediction for Friday’s jobs report. These include high gasoline prices and auto sector supply-chain disruptions stemming from the March 11 earthquake and tsunami in Japan. Nomura, a Japanese financial-services company, predicts that the Labor Department will report just 85,000 new jobs. Nomura also cited the Japanese disasters’ effect on the U.S. auto industry as well as poor weather conditions that impacted construction jobs.
Thursday’s jobless-claims figures squared with analysts’ predictions, but were not low enough to make a dent in unemployment. They may be a “canary in the coal mine” reflecting lackluster economic indicators -- including jobs reports -- to come, according to Feinman, who said when the numbers remain at that level for that long, “they’re telling you something.”
Nothing is certain, however. Although the ADP National Employment Report released on Wednesday fell way below analysts’ predictions, ADP numbers are not always accurate predictors of official Labor Department data. And even a disappointing jobs report should be taken with a grain of salt. The Labor Department frequently revises jobs numbers within a few weeks of releasing them.
In the end, “growth takes a long time,” Meyer said. “Unemployment is high for a long time.”
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