At a time when the economy should be creating employment at a fairly steady pace, the U.S. actually may have lost jobs in August.
That disturbing trend could be made apparent next week when the government releases its monthly nonfarm jobs report. Some prominent economists think the report will show a modest decrease in jobs when the final tally is made for the turbulent month.
In an economy that is more than two years from the technical end of the recession, a drop in jobs now would be a disturbing sign.
"If the recent rise in concerns about the economic outlook and associated plunge in equity prices led firms to increase firings and cut back on hiring, payroll employment may well have fallen outright in August," Paul Dales, chief U.S. economist at Capital Economics in Toronto, wrote in a research note.
Dales said that if his projections come to fruition, "That would be the first decline since February 2010 and would spook both the markets and the (Federal Reserve).."
With the stock market in a fairly aggressive correctionand the central bank facing increased policy pressures due to a flagging economy, bad news on jobs is exactly what's not needed.
The projection is based on a trend in which payrolls have declined the last four times the stock market has dropped by 10 percent in the four weeks preceding the release of the nonfarm jobs report. The trend dates back to 1997.
Going back to the 1960s, the unemployment report has shown a loss of jobs nine out of 13 times when the monthly report is preceded by a four-week stock market correction.
"In other words, history suggests that there is a 70 percent chance that payrolls fell in August," Dales said.
The Capital Economics projection of 25,000 job losses also is supported by a proprietary model based on a group of labor market indicators, which suggests a loss of 5,000 private jobs. Coupled with a 20,000 decrease in government jobs, that totals the expected 25,000 payroll drop.
"Overall, an outright fall in payrolls would clearly raise fears of a recession," Dales wrote. "Payrolls can fall even if (gross domestic product) growth is still slightly positive. They are also a lagging indicator of activity. But at the very least, a fall in payrolls would underline the fragility of the recovery."
Even among those not looking for an outright drop in employment, there is still concern about the direction in which the jobs market is headed.
Peter Cardillo, chief market economist at Rockwell Global Capital in New York, sees nonfarm payrolls growing by 27,000 in August, but in a difficult environment sparked by uncertainty.
"Corporate America is not hiring at the speed it should be," Cardillo said. "You can blame Congress. They're the ones who created the uncertainty. They not only created the uncertainty, but added to it by playing politics with the debt ceiling that basically impacted not only investors but also corporate America. It just added to that fear factor."
The weekly jobless claims reports that the government releases each week have provided indications that the employment situation remains stagnant. Economists closely watch the 400,000 level of new claims, a mark the jobs market can't seem to shake, with the most recent week—which will not figure into the August nonfarm report—at a stubbornly high 417,000.
The pattern indicates a drop in August payrolls of 5,000, according to Nomura Global Economics.
"We see recent initial jobless claims reports as indicative that firms have not started laying off in response to recent market volatility; however, we suspect that they have put hiring plans on hold," economist Jeffrey Greenberg said in a note.
Both Greenberg and Dales predict the unemployment rate actually could drop from 9.1 percent to 9.0 percent. But that's due mainly to statistical hocus-pocus—fewer people in the workforce actually can make the rate drop even if there are no new jobs created, and the count of those actively looking for jobs is expected again to decrease for the month.
To be sure, there are some who think the picture isn't as bleak as it looks.
Kurt Karl, chief U.S. economist at Swiss Re in New York, sees job growth of about 100,000—below the amount needed to indicate strong activity but an increase nonetheless.
"We've had positive employment growth up until now," he said. "We don't have any evidence that there's a massive amount of layoffs."
But even that optimistic forecast is tempered by a fear that the true slowdown in the pace of job creation may not show up until later in the year.
"I'm much more worried about the fourth quarter than this month or next month's report," Karl said. "If we continue to slow down then the employment will go negative. That's a very worrisome sign for this stage in the recovery cycle."