Market Looks for Evidence of Job Growth

By Kelly Evans Friday's report of 5.7% growth by the U.S. economy in the fourth quarter was a glimpse of what a strong recovery looks like. With unemployment still high, though, many economists saw the surge as a hollow victory. This week, three economic barometers that provide a first look at January activity could show the recovery has staying power. Monday, the Institute for Supply Management's manufacturing index is expected to hit 55.3 for January. That would be the sixth month in a row the index would be above the level of 50, which indicates growth in manufacturing, though the index has lost some of its earlier momentum. A level of 55 corresponds to annualized gross-domestic-product growth of about 4.5%, suggesting the U.S. economy is carrying decent momentum into the first quarter after its strongest performance in six years. The question: Is the growth creating jobs? ISM's manufacturing employment index has topped 50 for two of the past three months, but the service-sector employment gauge has been much slower to recover. In December, ISM's nonmanufacturing employment index came in at an uninspiring 43.6. The nonmanufacturing sector employs nearly 90% of U.S. workers. Economists expect January's nonmanufacturing index to remain below 50 when report is released Wednesday, though the headline index is likely to cross back into expansion. The disappointment could be allayed if Friday's Department of Labor employment report shows the nation added jobs in January, after an 85,000 December loss and a drop of roughly eight million since the recession began. "Our view is companies have gotten so aggressive in cutting hours and payrolls that we're now going to see some improvement," says Richard Berner, chief U.S. economist at Morgan Stanley. It expects a January gain of 75,000 jobs, above consensus for a flat reading. Such a pace of job growth is still only about half of what is typically needed to keep the unemployment rate from rising. Economists expect unemployment to hit 10.1% in January, its fourth consecutive month at or above 10%. If that seems at odds with the economy's recent strength, keep in mind that the unemployment rate is usually one of the last places recovery shows up.