Big Job Losses Could Rattle Markets

The U.S. economy likely lost jobs for the seventh straight month in July, but an unexpectedly large drop could raise large doubts about the economy's ability to avoid a recession.

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AP

The Labor Department releases its monthly employment report at 8:30 am, with economists predicting that nonfarm payrolls fell by 75,000 last month, compared with a drop of 62,000 in June.

The unemployment rate is expected to have risen to 5.6 percent from 5.5 percent in June, while average hourly earnings are predicted to have risen by 0.3 percent in July, the same rise as the month before.

"At the end of the day, we still do expect to see the U.S. economy continue to shed jobs at a pretty aggressive pace," Robert Rennie, currency strategist at Westpac Bank, told CNBC Asia.

The stock market is particularly sensitive to the deteriorating employment picture.

Stimulus checks helped the economy grow at an annual rate of 1.9 percent in the second quarter and avoid the standard definition of a recession after the fourth quarter was revised down to a contraction rate of 0.2 percent.

But if jobs become increasingly harder to find, consumer spending could seize up as people cut down to buying just the essentials.

If the drop in payrolls is above 100,000 that will rattle the stock and currency markets, Thio Chin Loo, senior currency strategist at BNP Paribas, told CNBC Asia.

Loo is predicting a drop of 95,000 jobs.

Volatile ADP Provides Hope

Jobs data earlier in the week was mixed.

The ADP private employment report on Wednesday said employers added 9,000 jobs last month, a big surprise to economists that predicted a fall in jobs.

But the ADP report tends to be very volatile and opinion is split on whether it gives an accurate hint at what the Labor Department will report.

On Thursday, the Labor Department said claims for first-time unemployment benefit rose unexpectedly by 44,000 for the week ended July 25.

And also on Thursday, Monster Worldwide said its measure on online employment demand fell to 157 in July from 163 in June.