JOHN KERRY
Laura Rauch  /  AP
After two straight weaker-than-expected jobs reports, Friday's employment data could have a dramatic impact on who wins the White House in November.
By
msnbc.com
updated 9/2/2004 7:00:38 PM ET 2004-09-02T23:00:38

As economic releases go, Friday’s report on the U.S. employment situation in August is likely to be one of the most important Wall Street has seen in months, if not years.

The report is critical, analysts say, not simply because it follows two surprisingly weak employment reports in June and July, but also because it is likely to play an important role in determining whether President George W. Bush or Sen. John Kerry wins the White House this November.

Friday’s report is the penultimate monthly jobs report before Americans go to the polls on Nov. 2, and if the data show more weakness, they could shift the focus of the presidential campaign from Kerry’s Vietnam War record to the state of the economic recovery, potentially benefiting the Democrat's campaign.

If they meet expectations, the data could also help the Republicans according to Steve Stanley, chief economist RBS Greenwich Capital. "If the report gives people some sense that the job market is getting better after appearing to slow in June and July, that could be a benefit to the President," he said.

Most Wall Street economists expect the payrolls data to paint a healthy employment picture for August, with the economy creating some 150,000 jobs, some five times the shockingly anemic 32,000 gain seen in July. The nation’s unemployment rate is expected to remain at 5.5 percent.

But after many economists missed the mark in June and July, few are forecasting a bounce back with a great deal of conviction.

“This is a frustrating time to be an economic forecaster,” said Mark Vitner, senior economist at Wachovia Securities, who is predicting a gain of 175,000 jobs in August. Vitner points to encouraging trends in new claims for unemployment benefits and job vacancy data from the Labor Department as evidence that the economy is strengthening.

“Our employment forecasts have been right on the money up to the last two months, and in those months we have been completely off,” Vitner said. “You follow your head and you do your calculations and you get a number, but your heart says it could be way too high. But this month I’m trying not to let my heart get in the way of my head.”

Like Vitner, Stanley thinks the June and July jobs data belie a strengthening economy. He predicts job growth of about 150,000 in August and predicts a steady expansion over the next four months.

“The June and July data exaggerated the weakness that was out there, but there was weakness nonetheless and I think that was due to a variety of uncertainties that crept into the economic outlook — the rising price of oil, and the threat of terrorism,” Stanley said, adding that the closely-fought election is also making investors nervous about the economic outlook.

Job growth has become a critical issue in recent months, not only for the presidential election, but also for the Federal Reserve, which has started to slowly raise interest rates from 40-year lows.

Major Market Indices

The Fed is expected to boost borrowing costs again in September to head off inflation and return interest rates to neutral levels. Federal Reserve policy-makers boosted rates by a quarter-point in June and August.

However, another weak jobs report, coupled with a recent data suggesting restraint on the part of the U.S. consumer, might call the Fed’s strategy into question.

John Lonski, chief economist at Moody's Investors Service, reckons that even modest job growth in August of some 120,000 would probably be enough to keep the Fed on message. “The jobs data would have to be really weak for the Fed to change its policy position, otherwise we’re getting a rate hike on Sept. 21,” he told CNBC Thursday.

Rory Robertson, an interest-rate strategist at Macquarie Bank, thinks a weaker-than-expected jobs report will give Greenspan and Co. pause. “It would be a bold decision to keep tightening while a sizable question mark remains over the self-sustaining nature of the current expansion,” he said.

A reason to be optimistic about Friday’s jobs report can be found in the temporary employment picture according to Carl Camden, president and chief operating officer of global staffing company Kelly Services. He reports strength in his sector, and expects the government to revise upward July’s anemic employment numbers.

"While not as flashy as past recoveries, job creation nonetheless continues on a path of steady, moderate growth,” Camden said. “The majority of the companies we support are adding staff, albeit cautiously, to stay just ahead of demand.”

But analysts caution that the August employment data could be skewed by Hurricane Charley, which tore through southwest Florida in August.

On Thursday, the government said the number of new people signing up for first-time unemployment benefits rose for the second week in a row last week, reflecting the lingering impact of the hurricane. Economists had expected claims to fall.

The storm probably impacted hourly workers in the month of August, and firms hurt by Hurricane Charley were probably not overly concerned with returning payrolls data to the Labor Department, which may slant the final payrolls report, said Steve Stanley, adding that the storm’s impact is likely to be relatively modest.

The initial impact from Friday's jobs report on stock prices, whether it is good or bad, is also likely to be viewed with some skepticism. Many Wall Street workers are on vacation this week, leaving stocks directionless in light trading volume, and so the true impact of the jobs data may not be seen until after the Labor Day weekend according to Peter Cardillo, chief market strategist at S.W. Bach.

“If we get a very negative report, the market could react to the down side, but any reaction will not be a true reaction because there is very little volume, so things are exaggerated,” he said.

Reuters contributed to this report.

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