Traders preparing for another wild Friday

It looks like tomorrow could very well be yet another episode of As the U.S. Economy Turns, as traders await the March 2009 jobs report, to be released by the U.S. Labor Department at 8:30 a.m. EDT.

Hopefully, it won't become another down-goes-the-Dow day, though analysts and economists haven't ruled it out. Nearly everyone in economics and public policy circles is preparing for another sobering report. Economists surveyed by Bloomberg News expect the March jobs report to show a loss of 650,000 jobs.

Since the recession started, the U.S. economy has lost more than 4.4 million jobs, including a staggering 1.9 million in the past three months.

Some recent positive signs for U.S. economy

The report comes amid recent, albeit mild, positive signs for the U.S. and international economies. U.S. factory orders increased 1.8 percent in February, the U.S. Commerce Department announced Thursday, better than expectations, a data point that suggests the rate of the U.S. contraction is, at minimum, slowing. Also, G-20 leaders in London said they would increase International Monetary Funding to $750 billion, agreed to new rules on pay and bonuses, and said member nations will commit $5 trillion in fiscal stimulus by the end of 2010, Reuters reported Thursday.

Nevertheless, the large U.S. job losses since the recession's start in December 2007, and particularly in the past three to six months, have spawned fears that the economy is falling in to a depression. Will a second Great Depression, which economists define as a one-year decline in U.S. GDP of -10 percent or more, occur? No economist can incontrovertibly predict that, but it is safe to predict that if the U.S. economy continues to lose 500,000 jobs a month, it will be in a depression.

During the Reagan recession of 1981-82, which was a bad recession that saw unemployment rise to more than 12 percent, U.S. GDP fell three percent. The Congressional Budget Office forecasts U.S. GDP to fall 2.2 percent in 2009 -- a very serious, damaging recession, but still not Great Depression levels (pdf). That said, the job loss trend is horrible, and if the United States fails to stabilize the financial system and get credit flowing more freely to businesses and consumers, one could see how unemployment levels could rise to near-depression levels.

Rising unemployment, and the demand it takes out of the economy, places the onus on the federal government to increase employment by fiscal stimulus, so says Thomas Worsley, who served as an economist for President Franklin D. Roosevelt during the Great Depression, Bloomberg News reported. "The question is, can we spend enough with peacetime spending to get us out?" Worsley said. "You have to get enough spending going to get private enterprise interested in taking chances on investing." He added that the current pronounced recession has vindicated John Maynard Keynes' argument supporting pump-priming.

A battle between institutional bulls and bears

A better-than-expected March jobs report -- that would be fewer than, say, 550,000 jobs lost -- would likely be seized on by the bulls as further evidence that a recession bottom is approaching. And by mid-day Thursday, it appeared market bulls were positioning themselves for that possibility, and also cheering the good G-20 news, as the Dow had surged more than 250 points to trade above 8,000.

The bulls also like to point to U.S. Federal Reserve Chairman Ben Bernanke's 60 Minutes interview, during which the chairman said he saw "green shoots" sprouting in the U.S. economy, and the Fed's Term Asset-Backed Securities Loan Facility (TABSLF), as further evidence that credit markets are normalizing.

Conversely, a worse-than-expected March jobs report -- more than 700,000 jobs lost -- would likely put the bears' argument back in focus. The bears argue that weak demand, high unemployment, scant household formation, weak business investment, declining exports, and the hangover from a housing sector with a 10-11 inventory of new and existing homes, will all weigh on GDP through 2009 and well into 2010, and at best lead to only a modest rebound in GDP in 2010. U.S. GDP declined at a 6.3 percent annual rate in Q4 2008.

Economic Analysis: One cannot underscore enough the economic and stock market importance of the monthly jobs report. It's the most important economic data point in the U.S. economy right now, and for the foreseeable future. Moreover, the report has economic, political, and social ramifications.

Further, although the recession began under President George W. Bush, from a political standpoint, that's irrelevant now. President Obama and the Democratic-led Congress are responsible for the U.S. economy now, and investors and voters will judge them largely on their ability to right the economy, which includes creating jobs. If they succeed, the U.S.'s market economy resumes its merry path. If they fail, it's difficult to predict the policy reforms that would follow from unemployment rates rising to post-World War II highs, but it is safe to assume that there would be major policy reforms.

Financial Editor Joseph Lazzaro is writing a book on the U.S. presidency and the U.S. economy.

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