The March jobs report will play a starring role in Friday's markets, and it may also be a helpful tool to gauge the extent of the economic downturn.
Economists expect the loss of 50,000 nonfarm payrolls for March, and an unemployment rate of five percent when the report is released at 8:30 a.m..
Many economists believe the trough of the economic downturn could occur any time between now and the summer months. That is because the impact of the Fed's rate cutting has not yet been felt, and if history is a guide, the impact should start showing up as we head into the summer. At the same time, the economic stimulus package could start to have some impact in the second quarter.
Mark Zandi, chief economist of Moody's Economy.com, expects a decline of 50,000 to 75,000 jobs for March. "The jobs declines are consistent with an economy that's contracting. The job declines are very modest in comparison with past recessions. If we get a much bigger decline than that -- 100,000 plus -- it calls into question if its going to be modest and short," said Zandi.
"If it is positive, that would suggest we may be getting out of this -- with a little bit of luck -- without a technical recession," said Zandi.
Encouraging data for the jobs report was the 8,000 increase in ADP's private sector jobs report, released Wednesday. But weekly jobless claims, released Thursday, showed 407,000 claims, the biggest number since September, 2005. The monthly jobs data is tricky as it is often revised. Jobs data is also viewed as a lagging indicator so it would not be surprising to see worse data ahead.
"I think based on the claims data for the month and also the ISM services employment index, it looks like a small decline, around 17,000," said Michael Darda, chief economist at MKM Partners.
"If it is negative, it will feed the recession argument, but I don't think it's really going to be consistent with a collapsing economy ... This economy, if it is in recession suggests it's in a very modest one at best," he said. Darda says he is paying special attention to the private sector payrolls which were weak last month with a decline of 100,000. He said that is a weak number for a still expanding economy, and he is watching to see if it is revised.
"The bulk of the weakness we're really going to see is here and now," Darda said. Darda says this is the most vulnerable period for the economy until the impact of the Fed rate cuts start to show up after the second quarter. He said real interest rates are lower than at the end of 1990/91 recession and as low as the 2001 recession. "The Fed has done full scale recessionary easing ... They have done a lot, and it will have an impact with a lag," he said.
Zandi said two wild cards could affect the jobs data. One is the impact of idled auto workers, affected by the American Axle strike. Zandi expects that could be a hit of 20,000 jobs though he's seen estimates that are double that. He also said the early Easter holiday may have created a surprise increase in retail sector jobs.
Zandi said a really good number on March payrolls may indicate that the Fed is about to end its easing spree, and a bad number may have the opposite affect. For now, he expects the Fed to trim the Fed funds rate by another quarter point when it meets at the end of the month.
Stocks held their own Thursday as the markets were intrigued, but not moved, by the Congressional testimony on Bear Stearns. The Dow finished up 20 points, while the S&P 500 was up 1.78 points and the Nasdaq was up 1.90 points.
Crude oil fell $1 to $103.83. The dollar rose 0.13 percent against the euro, finishing higher three out of the last four days. The dollar slid against the yen.
The Russians are Coming
Boris Schlossberg, senior currency strategist at Dailyfx.com made an interesting comment Wednesday on "Squawk Box" about the Russian Central Bank turning its attention to the weak dollar. I asked him to elaborate and he sent us the following note:
"The key thing to understand about Central Bank activity is that it tends to be very murky with very few disclosures, most of which happen months after the fact. That's why you can't assign too much importance to any one action. However, over the past several years RCB has a consistent pattern of being on the right side of the trade. So when it was reported by ifrmarktes.com that RCB increased its USD reserves by $7 Billion in Q1, my ears perked up.
As I mentioned on "Squawk" in the past they were sellers of USDJPY at 120 buyers of GBPUSD from the 1.8500 level and buyers of EURUSD at 1.3400. Typically they tend to be early, but ultimately right in their calls. Yen, for example, went all the way to 124.00 before dropping to 100, and pound spent some time in the 1.8000's before it staged a rally. Therefore, you should only view their actions from an intermediate perspective.
What does that mean in market terms? It means that the EURUSD may well stage one final rally to 1.6000 but that we are probably close to an intermediate term top and RCB senses a value proposition at these levels."