Where's the Recovery? Pros Think It All Depends on Jobs

Now what?

If the December payrolls report was a signature opportunity to gauge the health of the economic recovery, the economic reports in the weeks ahead will provide a nice table setting for the next report on jobs in early February.

Car Factory Employees
Car Factory Employees

There’s plenty of important data points and events to key on, from retail sales and the Federal Reserve's Beige Book this week to the Fed's next policy meeting and first reading on fourth-quarter GDP at the end of the month.

Indeed, a handful of economists came up with a number of litmus tests and some even dared to downplay the importance of what might have been one of the most hyped economic events in years.

“The payroll does tend to overshadow other important developments," says Zach Pandl of Nomura Securities.

Pandl, for one, says the market should be paying close attention to “survey-based data , which suggest households and firms are becoming more confident in the sustainability of the economic recovery,” such as consumer confidence, the ISM manufacturing and services reports. “It’s released in a timely data and tends to lead activity.”

That can hardly be said of labor market data.

“The market is focusing on payrolls because it is an important consideration of the Federal Reserve's policy,” says Ram Bhagavatula of Combinatorics Capital.

In that way, the payrolls report may be a better barometer of what the Fed will do then where the economy is going. Payrolls have become the market’s telltale sign for interest rate policy.

Retail Sales

Some economists say retail sales data due out Thursday will say a lot about the economy, particular the demand side.


“The markets will smell something if retail sales are stronger than expected,” says Bhagavatula. “Then conclude the jobs number is what is inconsistent.”

Retail sales have been showing consistent, if not, overwhelming gains in recent months, which coincides with more confident consumers, whose wealth has been buoyed by the nine-month rebound in stocks.

The Fed’s Beige Book should also reflect a happier and hungry consumer, as well as the improvement in housing.

Demand, so the thinking goes, will finally force companies to increase production and rebuild inventories.

We're seeing consistent gains in demand,” says Bhagavatua. “If that continues, then production will have to increase even faster. Persistence of demand is a pre-condition to get sustained job growth.”

Consumer spending buffs will get a second chance when advance GDP is released Jan. 29

Gross Domestic Product

“The key is how much growth we're going to have in the fourth quarter,” says David Jones Of DMJ Advisors. Jones recently raised his forecast from 3.5 percent to 4.0 percent, which is pretty close to the early consensus. “The important point about the growth is that it is for the most part related to inventory building. I’ve got good growth through the first half of this year.

In the past, GDP growth of 4.0 percent or more qualified as a feel good number, but that’s not always the case in the current half-full, half-empty dialectic.

“What the GDP number will do is basically validate that there is some top-line revenue growth, that production is starting to pick up,” says Brian Bethune of Global Insight, in representing the unenthusiastic side of the dialectic.

"Consumers aren’t going to spend a lot of money,” says Robert Brusca of FAO Economics. “If you’re going to have strength in spending, you have to put people back to work."

The FOMC meeting may yield clues to the Fed’s confidence in the recovery. Though no change is expected in the fed funds target or key aspects of its policy statement such as keeping rates low for an “extended period”, the committee could say more about the end of extraordinary liquidity measures crated during the early stage of the crisis.

The Fed will also be sure to say something about the job market and even a subtle change in its description of condition will earn a lot of attention.

And that will undoubtably set the table for the drumbeat up to the next payrolls number due out Feb. 5.

Directly or indirectly all roads lead to payrolls.

“I think the jobs number is a special number because we've been losing them for so long,” says Brusca. “We need to see job growth regardless of the other numbers. If we have job growth we know [the recovery] its real.”