Economic Data Mixed Ahead of Friday Jobs Report

Weekly jobless claims are down and private-sector hiring is up, but unemployment rate expected to rise

Unemployed standing in line at a jobs fair. (Photo: AP) Unemployed standing in line at a jobs fair. (Photo: AP)

As a lack of job creation continues to drive worry about where the U.S. economy is headed, all eyes will be on the Labor Department’s September jobs report on Friday.

Mixed signals from recent economic data suggest that the report will be a nail-biter: weekly jobless claims were reported down and private-sector hiring up, but the unemployment rate is nevertheless expected to rise.

Analyst consensus calls for an increase of 90,000 jobs in September, which would confirm market bulls’ sentiment that the economy is not headed toward a double-dip recession. Still, volatility and mixed economic signals have market watchers sifting carefully through recent data to get a better sense of the current state of the jobs market.

On Thursday, the Labor Department. reported initial claims for state jobless benefits totaled 401,000 in the week ending Oct. 1, an increase of 6,000 from the previous week's revised figure of 395,000. The slight rise nevertheless keeps claims in the 400,000 territory that suggests the labor market may be improving. The statistically more significant four-week moving average was 414,000, a decrease of 4,000 from the previous week's revised average of 418,000.

“This is very encouraging,” said Ian Shepherdson, chief U.S. economist for High Frequency Economics Ltd., in Valhalla, New York, in an analyst note. “Claims are now back to the level prevailing before Hurricane Irene, so the simplest explanation for their recent behavior is that the storm drove claims up for a time … and now they have fallen back to trend. The only problem with this view is that the Labor Dept has said it sees no Irene effect. We think they are wrong. For now, these numbers look good, though we can't be sure they'll stay that way given weak business confidence.”  

Also on Thursday, ADP Employer Services reported that companies added 91,000 jobs to the private sector in September. The increase followed a revised 89,000 gain in August. Economists had expected an increase of just 75,000 in September.

To be sure, even if Friday’s jobs report meets analysts’ expectations, it won’t necessarily reflect a lower rate of unemployment. The U.S. unemployment rate has proved to be stubbornly sticky, hovering around 9% for 26 out of the last 28 months.

TrimTabs Investment Research, which studies employment trends based on withholding taxes, says the U.S.

economy added an anemic 64,000 jobs in September, which is not enough to offset the 125,000 jobs needed monthly to offset population growth. As a result, TrimTabs expects the unemployment rate to edge higher.

Until the U.S. jobs picture improves, consumer sentiment will continue to be weighed down, according to the RBC Consumer Outlook Index for October. On Thursday, the index dipped a point from September to 39.2, showing that consumer confidence remained nearly flat, the third consecutive month with little change. Consumer confidence is below the 41.0 level of a year ago, and also below the average 40.2 level during the recession.

Although global economic issues may not be leading consumer sentiment, most Americans (59 percent) are following developments in the European financial crisis. More than one-third of Americans overall (36 percent) say that the crisis has worsened their confidence in the U.S. economy.

Despite recent market volatility, nearly half (47 percent) of Americans have not made any changes to their retirement fund contributions. Seven percent have shifted away from stocks, 6 percent have decreased their retirement fund contributions and 2 percent have increased contributions.

The dip in consumer confidence this month was driven by a drop in the RBC Jobs Index, which fell 3.3 points to stand at 47.2, its lowest level since March 2010. Nearly half (46 percent) of consumers say they or someone they are close to has lost a job in the last six months, up nine points from last month. Consumers are increasingly worried about job security, with one-in-three (34 percent) saying they are currently concerned about losing their job, up six points from last month.

“Jobs remain the biggest driver of confidence, and growing worries about employment security are affecting the consumer outlook,” said Tom Porcelli, chief U.S. economist at RBC Capital Markets. “But as our survey shows, you can‘t overlook the impact the European crises is having on US confidence. We are quite literally layering more worries into an already fragile psyche.”

Read about last month’s jobs report at AdvisorOne.com.

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