GLOBAL ECONOMY WEEKAHEAD-Jobs, the lagging indicator once more?

Sun Mar 27, 2011 7:01pm GMT

 By Emily Kaiser
 WASHINGTON, March 27 (Reuters) - The U.S. labor market is
finally improving, just when many of the other economic
indicators are wavering.
 Jobs are considered a lagging indicator. They typically
recover many months after the economy comes out of a recession,
and this cycle was no exception. So will troubles in Japan,
Libya and elsewhere push up U.S. unemployment later this year?
 "The U.S. economy is headed for another soft patch brought
on by the double shock," said IHS Global Insight chief
economist Nariman Behravesh, referring to Japan and upheaval in
the oil-producing Arab world.
 Assuming oil prices stabilize and Japan's reconstruction
and recovery begin in the next few months -- as most economists
currently expect -- Behravesh says the soft patch will likely
be short-lived. If he's right, the impact on the labor market
should be minimal.
 Friday brings the March employment report, and economists
polled by Reuters are looking for growth of about 188,000 jobs,
with the unemployment rate holding steady at 8.9 percent.
Graphic on unemployment rate:
For IFR's forecasts for the week ahead in U.S. economics,
please click on:       
 This employment report carries a bit more uncertainty than
usual because it arrives before some of the early indicators
economists rely on to fine-tune their forecasts.
 Normally, the jobs report is released after the monthly
Institute for Supply Management readings on manufacturing and
services, both of which contain employment measures.
 Not so this time.
 The ISM manufacturing survey comes out on Friday, about 90
minutes after the jobs data, and the services report won't be
released until the following week.
 That leaves Thursday's weekly jobless claims report as the
best guide, and the trend there has been "heartening," said
Deutsche Bank economist Brett Ryan.
 He said payrolls historically have not turned significantly
higher until weekly jobless claims broke below the 400,000
barrier. The four-week moving average, which smooths out weekly
volatility, has been below that threshold in four of the past
five weeks.
 That makes him a bit more optimistic than most about
Friday's employment figures. He thinks they will show a gain of
200,000 jobs, with the unemployment rate dipping to 8.8
 Even with the benefit of all the early clues, economists
have not had much success in predicting the jobless rate in
recent months. It has fallen by more than expected in each of
the prior three months, coming down nearly a full percentage
point since November. Indeed, the labor market has been among
the few positive surprises lately.
 Paul Ashworth, an economist with Capital Economics in
Toronto, said the U.S. economy "appeared to have everything
going for it headed into the new year" before the run-up in
food and energy prices and the Japanese earthquake.
 "Ironically, the labor market is the only part of the
economy still showing any unequivocal signs of improvement,"
Ashworth said.
 Many economists have downgraded growth prospects for the
first quarter, partly because of rising oil prices that
threaten to curtail consumer spending.
 Between the Middle East and North Africa unrest, Japan's
disaster and Portugal's deepening debt troubles, global trouble
zones have multiplied.
 Most of them have a connection to oil.
 Friday's ISM reports will offer more insight into how the
the global economy is coping so far. Even before Japan's
earthquake and tsunami, rising food and energy prices were
driving up business costs, and that pattern is likely to
 The European Central Bank has warned that it is keeping a
close eye on inflation pressures and would not hesitate to
raise interest rates.
 For most central bankers, what matters most is how
consumers react to those rising prices, so Wednesday's reading
on euro zone consumer inflation expectations bears watching. A
similar gauge of U.S. consumer expectations indicated they were
edging up modestly in March.
  U.S. consumer confidence measures clearly show rising
gasoline prices have darkened shoppers' moods. But that has not
yet translated into a perceptible drop in spending.
 That could be because of the improving jobs picture. When
people feel confident that paychecks will keep coming in
regularly, paying a bit more at the gasoline pumps isn't quite
so unsettling. When customers keep coming through the door,
employers are more inclined to hire.
 It's a bit of a chicken-and-egg problem, but as long as
spending holds up, the labor market should too.
 (Editing by Dan Grebler)

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