Why Friday's Jobs Report Is Expected to Be So Gloomy
CNBC.com Senior Writer
September probably offered little relief in the nation's vexing unemployment problem, setting the stage for more Fed intervention that experts give only dubious prospects for success.
Economists expect Friday's jobs numbers to be a wash—private payrolls likely increased 75,000 but the government cut another 78,000 Census workers from its payrolls.
When factoring in the other variables, that probably means zero jobs growth and an unemployment rate inching up to 9.7 percent from 9.6 percent, mainly because more unemployed people rejoined the search for work.
The reasons behind the poor jobs outlook are myriad, experts say: The tax climate remains uncertain as November's election prospects hang in the balance; the government is continuing to peel off Census workers; and while double-dip recession fears are coming off the table, belief that the recovery will be slow and painful is not.
"We're settling into what I would call this slow-growth mode that will be with us until we have resolved some structural problems in our economy. How long that is going to take nobody knows—it could be several quarters or several years," says Bart van Ark, chief economist at the Conference Board. "Everybody's just incredibly cautious because we are beginning to realize this was one of the worst recessions and not just a cyclical thing."
That's hardly what was expected when the government began spending its $810 billion in stimulus funds that was supposed to drive the unemployment rate down to about 8 percent by now.
What has happened instead has been a slog through very slow growth in which GDP could rise as little as 1.5 percent in the third quarter, according to some estimates.
"With a lot of the spending, it doesn't seem to be sticking here. It's going somewhere else," says Doug Roberts, chief investment strategist for Channel Capital Research in Shrewsbury, N.J. "In the near future, nothing seems to be ready to radically reverse this."
Enter the Federal Reserve.
The US central bank is expected to announce some form of quantitative easing—essentially the printing of money—as soon as its November meeting. A weak jobs report Friday likely would give Chairman Ben Bernanke and the rest of the Fed governors strong impetus to justify stepping in and taking other measures to drive down interest rates.
"The message that the Fed has been sending is very clear and that is that the status quo is unacceptable," says Zach Pandl, economist at Nomura Securities in New York. "The Fed is very clear. It has a mandate for full employment. We're not getting there fast enough and further monetary easing looks necessary."
But doubts linger about whether the Fed will be able to spur the economy.
After all, the central bank's policies have yielded mixed success at best, with a $2.5 trillion balance sheet expansion still leaving the economy with near double-digit unemployment and consumer and business confidence weak.
"I don't know what the purpose of QE would be," says Kurt Karl, chief US economist for Swiss Re in New York. "They'll have to reiterate that they'll put in QE2 if economic weakness warrants it. So far in my reading of the economy, it doesn't warrant it.
"Therein lies the rub: If they think the economy needs QE2 it's not a good sign to the market or the economy. So they have a delicate balance to strike there."
Some analysts believe that until the political situation in Washington gets settled in November's midterm elections, businesses will be loathe to make any commitments.
"As far as corporate America hiring again it's basically dependent on what happens in Washington," says Peter Cardillo, chief economist at Avalon Partners in New York. "If the opposition party should gain enough seats to perhaps reverse the present administration's policies somewhat, then I think you'll see a big pickup in employment."
Instilling consumer confidence is the key, says Cardillo, who actually is more optimistic than consensus as he sees net job gains of about 25,000 and the jobless rate holding steady at 9.6 percent.
"The problem is you have consumers who are still very wary," he says. "Unless you change the mood of the consumer, spending is not going to fall of a cliff. But by the same token, it's not going to be robust anytime soon."
And without that consumer generating final demand, there's little hope businesses will feel confident enough to start hiring.
"The Fed has little tools in terms of giving the economy a new pulse," says van Ark of the Conference Board. "It can avoid things getting worse. In the meantime we are looking at huge issues that need to be resolved. For that we need growth."