There has been a curious contradiction in the past couple of months between the dour financial markets and the more promising economic indicators. A report on the job market due out Friday morning should give a better sense of which perception is right and whether the U.S. economy is truly recovering.
The markets are clearly indicating that a recession — or something very close to one — is either imminent or underway. The high prices that investors are willing to pay for safe assets such as Treasury bonds and the steep declines in the stock market since the spring make sense only if the U.S. economy is at risk of dipping into an outright contraction.
Yet economic data paint a more benign picture of growth that is limping along slowly but consistently. Consumer spending is rising gradually despite a weak job market, according to August data released last week. Business activity has expanded in the manufacturing and services sectors, according to key surveys released this week by the Institute for Supply Management.
But those modestly upbeat signs won’t mean much if the job market doesn’t soon improve, and the latest monthly employment figures from the Labor Department — to be released at 8:30 a.m. Friday — will tell us how we fared last month.
Analysts are expecting mediocre numbers: 50,000 net new jobs, with an unemployment rate unchanged at 9.1 percent. At first glance, that would seem to be an improvement over August’s zero net job creation. But in fact, such results would be grim — indicating that job creation is flatlining.
That’s because 45,000 striking Verizon workers were counted as having lost their jobs in the August data; the zero job growth figure for that month should be more accurately described as a 45,000 gain to payrolls.
But last month, the strikers returned to work. That means the nation will have added 45,000 jobs without really having added any jobs at all. If the economic forecasters are right, and the nation added 50,000 reported positions last month, then the United States — 300 million strong, with a labor force of 150 million — added a measly 5,000 positions in September.
So, September is a month in which even hitting expectations would be worrisome, and it comes after forecasters have been too optimistic for several months in a row. The upshot is that there’s a real possibility that job creation is turning negative, which would raise alarm bells and appear to confirm the markets’ fears that the nation is heading back into recession.
In this age of diminished expectations, a positive number in the 100,000 range — subtract 45,000 to get the “true” level of job creation — would be a big, positive surprise. But even that would suggest a trend level of job growth that is too weak to keep up with an ever-growing labor force, let alone reduce the 9.1 percent unemployment rate over time.
The financial markets have been in disarray since the end of July. Friday’s report will tell how much that has influenced the thinking of the corporate sector and whether it has responded by slashing jobs or sitting on its hands instead of hiring.