Much is riding on the November report on job growth and unemployment due Friday from the Labor Department.
But investors tempted to place a quick bet on the jobs data, either before or after it is published, will be playing at the wrong table.
The high-stakes game, which is the only one that matters, is whether the global banking system can clean up the mess it created by peddling fixed-income investments pegged to low-quality U.S. home mortgages.
To be sure, the pace of job growth and the rate of unemployment, of all the periodic economic reports, greatly influence financial market trends, as well as public discourse about the economy.
On the eve of a presidential election year, headlines about job growth and the unemployment rate will dictate political campaign strategies and talking points.
A surprisingly strong or weak report on non-farm payroll growth Friday, or an unexpected decline or increase in the nation’s unemployment rate, could jolt consumer confidence and holiday retail spending one way or the other.
An unforeseen surge in private-sector jobs, shown in a report released Wednesday by payroll accounting service Automatic Data Processing, added vigor to the usual guessing game that precedes the monthly government jobs report.
Last month, a strong ADP report correctly predicted better-than-expected news on October job growth. The economy created 166,000 jobs in October, twice what economists expected.
On Wednesday, the Dow Jones industrial average climbed nearly 200 points, apparently because of the latest upbeat ADP data.
ADP said private employers added 189,000 jobs last month, about three times what economists had expected, according to Dow Jones Newswires. But ADP’s track record as a forecaster is spotty. In recent years, ADP’s November data has been significantly overly optimistic, according to Stone & McCarthy Research Associates.
And weekly reports of first-time claims for unemployment compensation, as well as several highly regarded surveys of employers, paint a different picture from the one in the ADP report.
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Jobless claims are rising. Job growth in manufacturing and service businesses has stalled, according to surveys by the Institute for Supply Management.
“Reality [in Friday’s job growth number] is likely to be halfway between what the ADP analysis says and what the initial-claims data indicate about November,” said Robert Stein, senior economist at First Trust Advisors in Lisle.
Stein estimates November job growth at between 55,000 and 60,000, with the unemployment rate climbing to 4.8 percent from 4.7 percent.
After the ADP news, Market News International surveyed economists to see if their forecasts had changed. The average estimate was unchanged at 75,000 new jobs, but the upper end of the estimate range rose to 125,000 from 110,000.
Federal Reserve Board Chairman Ben Bernanke has said he is watching jobs statistics, including weekly unemployment-compensation-claims reports, as he prepares for Tuesday’s meeting of Federal Reserve policymakers. The next jobless-claims report is due Thursday.
Bernanke and other central bankers here and abroad are looking for signs that the global banking debacle, known as the subprime mess, has spread to the broad economy.
In that regard, the ADP report was encouraging. The biggest engine of job growth, small and medium-size businesses, especially service-oriented businesses, did not seem to be hurt by the credit market turmoil that took hold last summer. Job growth in large-company jobs has sputtered in the last six months.
Evidence that contagion from the mistakes by big-league bankers has not seeped into the broad economy won’t reduce the determination of Bernanke and his central-bank peers around the world to stabilize the private banking system. But the resilience of the broad economy will affect how the central bankers stage their big-bank rescue operations.
David Resler, a veteran Fed watcher as chief economist for Nomura Securities, said upbeat jobs data, if it is confirmed in Friday’s Labor Department report, “seem likely to persuade [Fed] policymakers to address the ongoing credit market problems with more finely targeted measures,” rather than a sharp cut in interest rates and an official statement of heightened concern about a weakening economy.
For example, the Fed could make more aggressive use of its so-called discount rate operations, through which the Fed lends emergency funds to banks.
Michael Lewis of Free Market Inc., a Chicago-based economics consulting firm, said the Fed is likely to liberalize terms for lending to stressed-out banks to provide increased cash liquidity where it’s most needed.
Lewis expects the Fed on Tuesday to cut its short-term interest rate target one-quarter of a percentage point, to 4.25 percent from 4.50 percent, and to cut its discount rate on emergency loans a half-point, to 4.50 percent from 5.00 percent.
“The problem is liquidity, not the economy,” Lewis said. That’s the message in the ADP report.
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