Jobless numbers tomorrow--and on them hangs the trend in this market

08/06/2009 6:27 pm EST

Focus: STOCKS

Jim Jubak

Founder and Editor, JubakPicks.com

The U.S. Bureau of Labor Statistics releases the July payroll and unemployment numbers tomorrow before the stock market opens. It's a chance to give some badly needed new life to the "We can see the turn in the economy coming" optimism that has fueled the rally in stocks off the March 9 bottom. Or to push the market a little deeper into what is a developing case of the blahs.

The consensus among economists is that we'll see a big improvement in unemployment in the July numbers. Or to be more precise, a big slowdown in the number of people who lost jobs in July. Nobody is calling for job growth, mind you. But the consensus projection is that payroll numbers will show a decline of just 328,000 jobs in July. I say "just" because in June job losses ran to 467,000.

Even a smaller drop than last month will still keep the official unemployment rate headed up. If the consensus is right, July's jobs loss will push the unemployment rate to 9.6% from 9.5% in June. In other words, we're still on our way to the 10% plus unemployment rate that the Federal Reserve is predicting before any recovery begins.

Wall Street will be watching these numbers especially closely.

The health of the financial sector, which has led the stock market rally over the last five months, depends on mortgage foreclosure and default rates peaking soon. Foreclosure and default rates correlate strongly with unemployment: Surprise! When people lose their jobs, they stop paying their mortgages. A higher than expected jobless number will lead some to ask whether bad debt has really peaked at the banks.

Still, don't over-interpret these monthly numbers, no matter how they come out. One data point never makes a trend. Especially in this series. Jobless numbers have been historically volatile in June and July  because some big manufacturers, automakers for instance, typically shut factories then to retool for new models in the fall.

Of course, that was back when we had an auto industry. Who knows that the seasonal patterns in the U.S. economy might be now.

Related Articles on STOCKS