The monthly payroll jobs report, due out on Friday, has emerged as the Super Bowl of economic data — a hype-ridden event that attracts the attention of a very large audience. Thursday brought the pre-game show, in the form of three employment-related data points. And the news was surprisingly good. First time unemployment claims came in at 374,000, down from the (upwardly revised) total of 388,000 last week. Challenger, Gray & Christmas reported that companies announced 37,551 layoffs last month — a 13-month low. And ADP said that private-sector firms created 176,000 jobs in May.
After months of nauseating weakness, is something going on in the labor market? It's quite possible, although my guest on The Daily Ticker, Larry Kudlow, host of the Kudlow Report on CNBC, is less sanguine. "If we get more jobs, count me thrilled and happy," he said. "If you had a 300,000 number on ADP I'd be more enthusiastic." Three years into the economic expansion, the pace of job recovery remains too low to make a meaningful dent in the unemployment rate.
The U.S. jobs machine faces serious headwinds, ranging from the financial crisis in Europe to slowing growth in China. Each is a significant source of uncertainty. But on the purely domestic side, it seems that a couple of sources have been removed. The fiscal cliff looms in the horizon. But more recently, congress passed the JOBS Act, cut a deal to prevent student loan interest rates from rising, and passed a two-year transportation bill. For once, our legislative system, rather than sandbagging growth, seems to be a benign force at worst.
But a great deal of uncertainty remains. "Large and small businesses are still very unclear what's going to happen after the election," said Kudlow. And given the combination of divided government and the impending elections, no significant policy shifts are likely between now and November.
The financial media has latched onto the jobs data as the single most important figure. And there are basically four more jobs reports that matter between now and the election. Some analysts believe that the election dynamics are sufficiently simple that better-than-expected jobs reports in the July-October period will guarantee President Obama's election and that worse-than-expected jobs reports in the same period will mean Mitt Romney will take the oath of office next January. Kudlow agrees, to a degree. "When you had three months of bigger numbers in the December-February period, it sure made Obama's prospects better," he said. "If you told me jobs would rise 250,000 per month over the next few months, I'd say yes, it will help Obama." But Kudlow believes the global economic landscape includes more features that could hurt jobs growth than features that could help job growth.
With China, India, and Brazil showing signs of slowing, the U.S. now faces a twin burden — it must figure out how to create jobs in the context of declining global demand, and it must serve as an engine of growth and stability. Friday's employment report will provide a significant clue as to how the U.S. is managing.
Daniel Gross is economics editor at Yahoo! Finance
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