updated 2/28/2010 5:54:11 PM ET 2010-02-28T22:54:11

Investors are seeking direction. Friday's report on employment could give them exactly what they want.

Major Market Indices

The Labor Department's monthly snapshot on employment has always been crucial for investors trying to figure out where the economy is headed. This month's report comes at a time when the market cannot figure out which direction it wants to go. Economic indicators domestically and around the globe are as murky as they've been in months.

Markets have alternated rallies and retreats in recent weeks — sometimes even within a single trading session — following fallout from European debt problems and recent reports on housing, manufacturing and consumer confidence that sent mixed signals.

On top of that, the last two weekly jobless claims reports have shown surprise jumps in people filing for unemployment for the first time. Both weeks economists had forecast declines.

The uncertainty means investors will delve deeply into the monthly employment report. Underneath headline numbers that aren't apt to improve much, traders and analysts will dissect other data from the report looking for signs that the economy is on the right path.

The report could suggest the U.S. is following Europe, where growth is almost nonexistent, or it could show that the fourth-quarter gross domestic product jump of 5.9 percent can be sustained.

"Job creation is fundamentally important," said Brett D'Arcy, chief investment officer of CBIZ Wealth Management Group. "In the end, if we create jobs, we'll have consumers with dollars in their pockets." Consumer spending accounts for about 70 percent of U.S. economic growth, making it critical to a strong recovery.

The headline numbers in Friday's report — the unemployment rate and jobs added or lost — will still be important. Economists polled by Thomson Reuters project the unemployment rate rose to 9.8 percent in February from 9.7 percent a month earlier.

At the peak of the recession, employers were shedding more than 700,000 jobs a month. In February, they are expected to have cut 20,000 jobs for the second straight month.

"Job losses have slowed significantly," said Arpitha Bykere, a senior analyst at Roubini Global Economics. "A recovery now hinges on hiring."

Some key issues:

  • Underemployment: In addition to those considered "unemployed," this rate factors in workers who have given up looking for work and part-time workers who would prefer to work full-time. The current rate is 16.5 percent, meaning nearly one in six people aren't working as much as they'd like. "A tremendous number of American families, households are affected," Len Blum, a managing partner at investment bank Westwood Capital, said. He noted that the underemployment rate paints a truer picture of just how bad the job situation is in the country.
  • Hours worked: The average number of hours worked is one of the better leading indicators in the report, analysts say. That's because current employees can only work so many hours before new staff needs to be hired. A continued rise in average hours worked would point to job creation in the coming months. Economists forecast hours worked rose to 33.4 hours in February from 33.3 a month earlier.
  • Temporary employment: This is also considered a good indicator of which direction the unemployment rate will go in a few months. With employers still unsure about the recovery's strength, they'll add temporary or part-time workers at first if they see a surge in demand. Temp services added 52,000 jobs in January, the fourth straight monthly gain. Analysts say employers won't add permanent jobs, because of the high costs of salaries, benefits and training, until they are sure business has returned for good.
  • Unemployment duration: Roubini Global Economics' Bykere said more than 30 percent of unemployed people have been out of work for at least six months and half at least three months. Those signs are troubling, she said. The longer someone is unemployed, the harder it is for them to find a new job, especially for people who have to retrain to find work in a new profession.

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