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Why the jobs report is so important

By Mark Hamrick · Bankrate.com
Monday, September 2, 2013
Posted: 5 am ET

Now ancient history along the pop culture timeline, political strategist James Carville is said to have coined the phrase "The economy, stupid" as a way of encouraging focus during Bill Clinton's successful 1992 campaign. The focus worked, of course. And it remains still relevant a half-decade after the financial crisis and two decades after the phrase was coined.

This week, the economic attention zeroes in on the job market. The employment report from the Labor Department comes ahead of a mid-month Federal Reserve meeting. Second-quarter economic growth last week was revised up to a nearly impressive 2.5 percent annual rate, and there's added pressure on the Fed to begin to reduce its $85 billion dollar monthly asset-purchase program.

Economic releases

  • The Institute for Supply Management manufacturing index: 10 a.m. Tuesday (all times Eastern)
  • Federal Reserve's Beige Book: 2 p.m. Wednesday
  • Institute for Supply Management service sector index: 10 a.m. Thursday
  • August employment report: 8:30 a.m. Friday

Jobs, jobs, jobs

Just to refresh our memories, the July jobs report took the unemployment rate down to 7.4 percent, while employers added 162,000 jobs to payrolls. Because payrolls were lower for the two previous months of May and June, the reading was seen as mixed overall.

What's on tap for the August reading?

At Briefing.com, economist Jeffrey Rosen sees a slight improvement in the pace of hiring. Says Rosen, "For the past 12 months, nonfarm payrolls have added, on average, 189,000 new jobs every month. The latest initial claims readings showed improvements in labor conditions in August that correlate with payroll growth in the neighborhood of 200,000."

Below the headlines, part of the picture hasn't been so pretty. That includes what's been happening with lackluster wage gains and hours worked, which may be weighing on consumers. "Even if payrolls increase more than expected, a drop in the average workweek could eliminate any potential aggregate income gain that would have come from the payroll additions," Rosen says. "That would put downward pressure on future consumption growth."

Prospects for future improvement?

While layoffs have not been a problem for some time, the question remains: Why aren't employers more aggressive with their hiring? Peter Morici, professor at the University of Maryland School of Business, is less than optimistic. "Businesses remain cautious about hiring full-time workers," he says. "Much of the progress will be part-time positions at low wages.

"Manufactured exports are improving, but a good deal of that is accomplished with very low labor use. "Ultra-automation is becoming the hallmark of U.S. competitive advantage," Morici adds.

Business perspective

Companies that can and need to hire will do that. Why don't others? One easy answer is lack of demand. But William Dunkelberg, chief economist for the National Federation of Independent Business, says, "Overall, the job picture is pretty weak. The thing that would improve it, of course, is a better outlook for the future. And apparently, small-business owners still do not have a very positive view about where we will be in a year."

Dunkelberg, who is also a professor of economics at Temple University, says business owners most often complain about regulation, including Obamacare. Longer-term surveys done by the trade group has typically found that owners cite rising health care costs as their No. 1 problem. No. 2, he says, is uncertainty about the economy.

Reason for optimism?

At the jobs site CareerBuilder, spokeswoman Jennifer Grasz is seeing more positive trends. In fact, she says, there is light at the end of the tunnel. She says job listings on the site have been rising in "double digits" year over year. Further, Grasz says jobs are being "added across industries, across company sizes and across geographies. It is very different from what you would have seen a few years ago. So it is headed in the right direction."

Back to the Fed

With the Federal Reserve meeting just a few weeks away, it is expected to weigh in on the question of whether it begins to withdraw some of the economic stimulus that Chairman Ben Bernanke has likened to stepping on the accelerator of a car. Global financial markets, which have become somewhat addicted to stimulus provided by central banks, have had some negative reactions to hints of so-called tapering. The reaction to an actual pullback by the Fed will be of interest to consumers, investors, savers and borrowers alike. That's because it will help dictate the direction of stock prices, interest and savings rates.

This week in business history: The Edsel

In the modern era, the introduction and failure of New Coke by Coca-Cola has typically been held out as the prime example of a bad business decision. If you go back a half-century or so, the quintessential bust was Ford's introduction of the Edsel brand Sept. 4, 1957. It wasn't just one car; it was entire division, named after the son of founder Henry Ford. By the end of 1959, production would end and Ford would be stuck with millions of dollars in losses from the monumental mistake.

Follow me on Twitter @hamrickisms.

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