Economy Evaluation: It's Still All About the Labor Market

by: James Picerno

The next round of economic releases is about to commence, ushering in the next phase of the post-apocalyptic financial crisis. Although we're likely to see a fresh batch of encouraging numbers, there's plenty of reason to remain humble on expecting that salvation is imminent for one simple reason: the labor market continues to bleed.

"While job losses will likely end early next year, robust job gains may still be several quarters away," according to Christina Romer, the chair of President Obama's Council of Economic Advisers, in testimony to Congress last week.

That's a fairly stark assessment considering that it comes via the usual political spin that passes for debate in Washington. A cynic might argue that if the White House is preparing the nation for many more months of job destruction, the truth may be even harsher. Meantime, the next clue comes on November 6, with the monthly update on employment from the government.

Hope isn't lost, of course. An Intuit payroll survey (pdf file) taken in late-September, for instance, offers reason for optimism over the next 12 months. More than 40% of respondents said they plan to hire new employees over the next year. But a year is a long time in a recession that's the longest since the 1930s.

In short, talk is cheap and so the world waits for numbers. There'll be no shortage this week, starting with Tuesday's update on consumer sentiment, followed by Wednesday's double-barreled release of durable goods orders and new home sales. Thursday, of course, brings word of the government's first estimate of third-quarter GDP. Most observers are looking for a rise, although this sets up the markets for more than a trivial amount of disappointment if the actual number falls into the red. But for the moment, the crowd's looking for a healthy jump of 3.2%, according to the consensus outlook via Briefing.com.

Friday wraps up the week with the personal income and spending report for September. The consensus forecast calls for no change in income on the month and a rather hefty 0.5% drop in consumer spending, according to Econoday.com via Bloomberg. If so, those numbers threaten to take the shine off any rise in the previous day's GDP report.

But let's not forget that it's still all about the labor market at this point. Yes, we're likely to see more evidence this week that the recession has technically ended. But let's hold the applause until we see what the Bureau of Labor Statistics' October labor report brings, scheduled for release on November 6. Indeed, equating a gain in GDP with the start of a net positive change in jobs on a national basis is still premature. The consensus forecast for jobs, according to Briefing.com, is another loss, with nonfarm payrolls shrinking by 175,000 this month. If so, that'll be the smallest monthly loss in more than a year. Alas, trying to put a happy face on another negative number by speaking in relative terms is wearing thin after nearly two straight years of monthly job declines.

The question before the house is what the distinction means vis-a-vis an expanding economy and a still-shrinking labor market? Something tells us that we're about to find out.