If we ever need a good jobs report, it’s now.
And we probably won’t get it.
“I think [Friday’s] payroll report will be crucial” for financial markets reeling through a prolonged sell-off, said Michelle Meyer, an economist at Merrill Lynch. “If we get a negative number, I think all bets are off … [and] I think there’s a nontrivial chance it happens.”
The Labor Department’s employment report for July, out Friday morning, will cap off a volatile and gloomy week for the economy. Coming off stocks’ worst performance of the year in the previous week, Monday brought news that President Obama and congressional leaders had sealed a deal to raise the debt ceiling and avoid default. But the rally that followed was short-lived—and quickly gave way to a weeklong slide.
Instead of celebrating the debt deal, markets focused on the underlying weakness of the economy. Safe-haven assets such as Treasury bonds and gold climbed to record levels.
Recent economic data give little reason for markets to be optimistic about growth—or Friday’s jobs number. The most recent gross domestic product numbers, released last Friday, estimate second-quarter growth at a meager 1.3 percent, and revised first-quarter growth downward to just 0.4 percent.
White House press secretary Jay Carney assured reporters at a Wednesday briefing that the United States isn’t facing a double-dip recession and that Tuesday’s debt-ceiling agreement would send a “reassuring message” to global markets. It hasn’t come through yet. The Dow Jones industrial average, S&P 500 stock index, and Nasdaq each fell by more than 3 percent during Thursday's session.
Analysts are wary of the implications of recent indicators. “We took a sledge hammer to our forecasts last week, and now look for below-potential growth through the end of the year,” a Bank of America Merrill Lynch Global Research report said on Thursday, noting that the researchers had doubled their estimates of the chance of a recession within the next year to 35 percent.
The consensus forecast for Friday’s jobs report is a net gain of 85,000—not nearly enough to bring down the unemployment rate. Some analysts are bracing for far worse.
Gary Burtless, a senior fellow in economic studies at the Brookings Institution, expects private employment to have “continued tepid growth,” which will be partly offset by declines in state and local government employment. “I don’t think the numbers are going to be very good,” he said.
The ADP National Employment Report, which offers a rough—but often deceptive—hint of the Labor Department’s number, reported on Wednesday that private payrolls added 114,000 net new jobs in July. Last month, ADP said that nonfarm payrolls grew by 157,000; the government reported just 18,000.
Joseph LaVorgna, Chief U.S. economist at Deutsche Bank, expects a “modestly positive” number in Friday’s Labor Department report. But, he said, that may not be enough to turn the markets around.
“To say the market is psychologically fragile is an understatement,” LaVorgna said. “We really need a much better than expected number.” A negative employment number could be even more harmful than it would be in a less tenuous environment, he warned.
Burtless thinks the employment numbers, whatever they are, will tell a bigger story. The employment statistics at the end of 2008 and early 2009 turned out to be a better gauge of the severity of the recession and weakness of recovery than economists thought at the time, he said, and the recently-revised GDP numbers bore that out. “The jobs numbers have been quite timely in telling us how bad things are. It was other kinds of statistics that led people to be optimistic.”