The Wall Street Journal-20080201-Ahead of the Tape

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Ahead of the Tape

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[Today's Market Forecast]

Recession Fears

May Ease a Bit

On Jobs Data

A month ago, a weak employment report set recession alarms ringing on Wall Street. Today's update might muffle those alarms.

Economists expect the Labor Department to report that the number of workers on U.S. nonfarm payrolls expanded by 75,000 in January. In an economy that employs nearly 140 million people, that's not a lot. But as long as it remains positive, it will be hard to declare recession is at hand.

Automatic Data Processing, a payroll processor, says employment grew at a healthy clip in January. Consumer surveys by the University of Michigan and the Conference Board suggest worries about the job market have steadied.

Meantime, economists estimate the unemployment rate notched down to 4.9% in January. It had jumped sixth-tenths of a percentage point to 5% since hitting 4.4% in March. In the past, a jump of that magnitude has been a sure-fire recession indicator. A retreat could make people second-guess the signal this time.

Yet it's hard to say with much conviction that the job market is in stable condition. Different indicators of job growth are pointing in the other direction. The number of Americans turning to unemployment offices for jobless benefits jumped to 375,000 in the week ending Jan. 26 -- a troubling development, if sustained. The Monster Employment Index of online job listings fell for the third straight month in January and posted the first year-over-year decline in its very brief (roughly four-year) history. Meanwhile, regional Federal Reserve surveys have shown little hiring appetite in the factory sector.

The jobs report, in short, could show an economy still hanging in the balance. And that could be just where investors find themselves after all of the numbers are sorted out -- still hanging in the balance about the economic outlook.

The Weak Dollar's Bonus May Prove Short-Lived

A weak currency can be an exporter's best friend. It means overseas profits translate into more when converted back home. It also means exports are less costly, and thus more competitive, abroad.

But the U.S. could lose the bounce it's been getting from a weak dollar if the global economy starts weakening with it. That's especially the case with a giant U.S. trading partner: Europe.

U.S. merchandise exports to the European Union have risen steadily over the past few years as the dollar weakened. For the first 11 months of 2007, these exports were up 16% over that same period in 2006, their biggest jump in more than a decade.

But Europe's growth appears to be slowing. German retail sales fell in December, and confidence in Europe more broadly slipped this month.

Economists warn that demand for American products will slow with it. Overall, U.S. exports grew at an annual rate of just 3.9% in the fourth quarter, down markedly from 19.1% in the third quarter and well below its recent average. "The advantages of a cheap dollar are trailing off," says John Lonski, Moody's chief economist.

While the weak dollar's blessings might be waning, its potential curses linger. A declining currency can stoke inflation by making foreign goods more expensive. That's not what the Fed wants to see when it's slashing interest rates, a threat of inflation itself.

-- Craig Karmin

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