The latest read on the nation’s job market, due Friday morning, is the biggest test yet of whether the U.S. economy is muddling along or sliding back into recession.
The Labor Department’s monthly unemployment report will be the first solid piece of economic data — not a survey, but a measure of actual economic activity — for August. It will offer an early reading of the impact on job growth of a factious debate in late July over raising the nation’s debt limit that has sapped Americans’ confidence in their government and of the fallout from the jaw-dropping ups and downs of the stock market in early August.
The report will also weigh heavily on Federal Reserve policy. The central bank plans to meet Sept. 20-21, extending the originally planned meeting from one to two days to have more time to consider actions to boost economic growth. That could mean buying Treasury bonds to pump money into the economy or shifting its existing bond holdings into longer-term securities. Friday’s jobs numbers are the most significant pieces of economic data to be released before that meeting. The worse it is, the more likely the Fed would choose to take action.
Economists are expecting the Labor Department report, to be released at 8:30 a.m., to show that employers added 68,000 net new jobs in August and that the unemployment rate was steady at 9.1 percent. However, uncertainty around this number is unusually high, and some analysts worry that job growth could even turn negative, raising alarm bells that the country could sink back into recession.
“There is a real danger that the recent economic slowdown and financial market turmoil resulted in non-farm payroll employment falling outright in August,” Paul Dales, an economist at Capital Economics, said in a research note.
There was some modestly positive news on the jobs front Thursday. The Labor Department reported that 409,000 people filed new claims for unemployment insurance benefits last week, down from a revised 421,000 the previous week.
But the weekly jobless claims number has been a less reliable indicator of the overall state of the job market since the end of the recession in 2009. The number of people filing jobless claims — a proxy for layoffs and hiring — has fallen sharply, but the unemployment rate has not followed suit.
In effect, employers are not firing people as quickly as they were during the 2008-09 recession. But neither are they hiring people as rapidly as they would during a healthy recovery. The labor market is essentially frozen, with people neither losing jobs nor gaining them in large numbers. In June, for example, there were 3.1 million job openings, according to Labor Department data, little changed since February and far below the 4.4 million openings in late 2007 before the recession began.
Indeed, official economic forecasts are increasingly acknowledging the stagnant jobs market. The White House on Thursday released a revised economic forecast showing that unemployment is likely to hover around 9 percent through the 2012 presidential election -- markedly gloomier than a previous White House forecast that the jobless rate would fall to 8.2 percent by the end of next year.
Katharine Abraham, acting chairwoman of the White House Council of Economic Advisers, said the council prepared the new forecast to reflect an inordinate amount of “economic volatility in the last couple of months.”
“There’s a lot of uncertainty,” Abraham said. “That led us to forecast slower near-term growth in GDP, and the projection for unemployment reflects that.”