The April jobs report is due out from the U.S. Labor Department on Friday. While economic statistics typically have a temporary effect on Wall Street before being shoved aside by whatever bit of news or data arrives a few days later, the April jobs number could be a bigger deal than usual.
Recently, the Federal Reserve left interest rates unchanged. Following the announcement, Fed Chairman Ben Bernanke held the first ever Fed press conference in which he laid out the Fed’s view of the U.S. economy. He suggested that the economic recovery is slowing. He didn’t use the word fragile, but plenty of people heard it anyway. He also suggested that inflation was tame and that any uptick was dwarfed by the greater potential for a slowdown in growth.
Jobs Key to Economic Recovery
Business spending has been measured, despite a tiny boom going on in Silicon Valley. Consumer spending has been whacked by not only by widespread job losses, but also by the housing market crash and subsequent collapse of the mortgage industry.
Many homeowners have no equity left in their homes. Those that do are finding that terms for second mortgages are no better than the difficulties faced by many in getting first mortgages. Refinancers aren’t doing any better regardless of credit score and loan payment history.
In other words, the only source of new money for this economy is new jobs. Without them, the recovery is doomed. With them, what is now a fragile economic recovery could slowly bloom into a full-fledged recovery.
The April jobs report is expected to come in with around 200,000 new private sector jobs. If the actual jobs number is close, expect the usual temporary effect from the jobs report, up if better than 200K or lower if less, either way, faded into market memory by the middle of next week.
If, on the other hand, the jobs number comes in substantially lower, expect some serious fallout. Unless analysts choose to write off April as an anomaly, low job creation suggests the economy may not be recovering, slowly or otherwise. That suggestion could trigger the slow unwinding of the current bets on Wall Street that better numbers and better growth is on the way for stocks and earnings. Without that optimism, nothing is holding this market up.
Low job growth, plus Washington budget cutting that slashes jobs at the Federal Government could be the death blow for an economic recovery that has been slow and unsteady thus far.
If investors start worrying too much about that possible future, the market is due for another downturn that could wipe out all the gains for this year and may even start wiping out last year’s stock market rise.