Wanted: Big jobs gain

NEW YORK (CNNMoney.com) -- The general public, including those who vote, has been nervous about the economy for some time. Now so is Wall Street.

So when the October employment report comes out Friday, strong job growth would give a much-needed lift to stocks and can't hurt Republican incumbents facing a tough re-election challenge next week. But further sluggishness is likely to be bad news for both.

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Economists surveyed by Briefing.com are forecasting that employers added 125,000 jobs to payrolls last month, up from the disappointing 51,000 gain in September. They also project unemployment will remain at 4.6 percent.

Some economists for Wall Street firms say this month's jobs number is so critical for the markets, more important than even a typical month, because of the bite that economic worries have taken out of stocks for the last week.

"Wall Street will need a blowout number," said Anthony Chan, chief economist for JPMorgan Private Client Services. A strong employment report isn't likely to raise concern over the Fed raising rates. Rather, it's likely to lift some of the gloom out there about the state of the economy.

"There's a lot of pessimism out there. Only when there's optimism do you get spooked by good data," said Chan, who said a job gain of at least 150,000 will be needed to spark a rally. "A [payroll] number above 200,000, or a lower unemployment rate and it'll be perceived as happy days are here again."

For much of October, U.S. stocks had been ignoring forecasts of a slowing U.S. economy, with investors looking at those warnings only as a sign that the Federal Reserve might soon start cutting interest rates. The Dow Jones industrial average set record closing highs in 13 trading days during a stretch of 18 trading days.

But starting last Friday, when the government's gross domestic product report showed the weakest level of growth in more than three years in that broad measure of the U.S. economy, economic worries have been dogging Wall Street.

The GDP report was followed by reports showing lower than expected readings for spending by individuals, construction spending and manufacturing activity.

Thursday, the Dow was on its way to its fifth straight decline, the first time this has occurred in more than a year, owing to troubling reports on productivity factory orders and initial jobless benefits. Perhaps of greatest concern to the markets have been weak sales reports, and sales forecasts, from many major retailers, including Wal-Mart Stores (Charts), Target (Charts), Costco (Charts) and Gap (Charts).

But even if the markets are cheering a gain of 150,000 more jobs in October, it's not clear that will convince American workers, and voters, that there is a strong job market.

Such a gain would leave the year-to-date increase nearly 100,000 jobs behind the gain seen in the same period last year, even though that 2005 period included the hit to employment that took place in September and October from damage done by hurricanes Katrina and Rita.

The average American already seemed to be wary about the strength of the labor market, even with the unemployment rate hitting a low in recent months not seen since the summer of 2001, before the Sept. 11 attack.

The recent consumer confidence survey by the private research firm The Conference Board found 25.8 percent characterized jobs as plentiful in October, down from 26.2 percent in September and 29.4 percent who saw jobs as plentiful as recently as April. And those who said jobs are hard to get has risen to 22 percent of those surveyed in October, up from 20.9 percent in September and 19.7 back in April.

Compare that view of the labor market to July 2001, the last time the unemployment rate hit 4.6 percent before this spring. Then 35.6 percent saw jobs as plentiful, while 14.1 percent said they were hard to find, even though employers were already cutting jobs, the stock market bubble had already burst and the economy was already in recession at that time.

The current confidence index, along with consumers' view of the labor market, are close to where they were in October 1996, just before President Bill Clinton was re-elected fairly easily.

But this year the dissatisfaction with Republicans and the Bush administration on other issues, such as the war in Iraq, is bleeding over into people's view of the economy.

The most recent poll by CNN that asked about the economy two weeks ago found only 40 percent approved of President Bush's handling of the economy, compared to 58 percent who disapproved.

And Bush is getting those poor marks even as a separate CNN/USA Today poll conducted Oct. 27 to 29 showed 62 percent of those surveyed saying the economy is very good or somewhat good, up from 44 percent between Aug. 30 to Sept. 2, when gas prices were still a much more pressing concern and just before the stock market's record run.

"Bush's credibility has been so tattered by Iraq, it affects him negatively even in areas going well," said Greg Valliere, a chief political strategist for Stanford Group, a Washington research firm.

Valliere and Chan both think that housing could be one thing weighing on consumers' view of a weaker economy.

The National Association of Realtors has reported a slump in existing home sales that has created a glut of homes on the market and pushed year-over-year prices down for the first time in more than a decade.

That decline in existing home prices is still only 2 percent, which, while the largest drop on record, is far less than the run-up in prices seen in the real estate boom of recent years. Still, it's enough to cause worries.

"There's a lot of anxiety about housing, even if people's houses are worth more now than two years ago," said Valliere.

But Valliere says even if voters were overwhelmingly happy with the economy, probably the major issue weighing on them this fall would continue to be the war in Iraq. That's confirmed by the latest CNN/USA Today poll.

That poll showed that while 73 percent of those polled rated the economy as "extremely" or "very" important to them, that was down from 82 percent in early August. And it only places the issue as No. 3 in the list of concerns, behind the war in Iraq (83 percent) and terrorism (80 percent.)

Only 33 percent said the economy was "extremely" important, putting it tied for sixth, with fighting in Afghanistan, as having that most pressing level of concern. Besides Iraq and terrorism, ethics in government (37 percent) and the situation with North Korea (35 percent) also edged out the economy for top-tier concern.

"I don't think the economy is going to make that big a deal in much of the country," said Valliere. "It should be a plus for the Republicans, but it's not even going to be neutral; it's going to be a slight negative for them."

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