The global financial crisis could wipe out 30 million jobs worldwide by the end of 2009, said the International Labor Organization (IOL), an agency of the United Nations.

The best-case scenario would be 18 million jobs lost, which would amount to a global unemployment rate of 6.1%. The loss of more than 50 million jobs lost and a 7.1% unemployment rate would be the worst-case scenario.

If the latter happens, the number of working poor – people who are unable to earn enough to lift themselves and their families above the poverty line ($2 per person per day) – may rise up to 1.4 billion, or 45% of all the world’s employed. Worse, some 200 million workers, mostly in developing economies, could be pushed into extreme poverty ($1.25, or less, a day), the ILO report said.

The report goes one step further, saying that those who’ve managed to keep their jobs should expect earnings and other employment conditions to deteriorate.

“The ILO message is realistic, not alarmist. We are now facing a global jobs crisis,” ILO Director-General Juan Somavia said in a news release. “Many governments are aware and acting, but more decisive and coordinated international action is needed to avert a global social recession. Progress in poverty reduction is unraveling and middle classes worldwide are weakening. The political and security implications are daunting.”

Where It’s Worst

As of last year, North Africa and the Middle East had the highest unemployment rates, 10.3% and 9.4%, respectively.

Central and Southeastern Europe countries out of the European Union and the Commonwealth of Independent States (regional organization whose participating countries are former Soviet Republics) had 8.8% unemployment. Sub-Saharan Africa’s unemployment was 7.9% and Latin America’s 7.3%.

East Asia had the lowest unemployment at 3.8%, and that region was followed by South Asia and Southeast Asia, 5.4% and 5.7%, respectively. Those regions plus Asia-Pacific accounted for 57% of global job creation in 2008.

Developed economies and the European Union, however, posted a net employment creation of negative 900,000 jobs.

Of course, while the Asia-Pacific region is creating the most jobs, they and Africa have the highest number of people currently living in poverty. And if unemployment becomes an issue there, that poverty will only deepen.

The ILO said that government-works projects – such as the construction and rehabilitation of roads, bridges, schools, hospitals and public buildings – could help create and sustain employment numbers until the overall job market stabilizes and rebounds.

“While major capital-intensive new infrastructure projects take time to translate into increased employment, labor-based approaches can generate jobs and much-needed infrastructure quite quickly,” the ILO’s 54-page report said, referring to stimulus packages passed by China, Japan and the United States, the world’s top three economies.

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• International Labor Organization:
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This week’s economic reports will be highlighted by Friday’s unemployment report, which analysts expect will illustrate the 11th straight month of declining job ranks in the U.S. economy.

Non-farm payroll employment fell by 240,000 in October, and the unemployment rate jumped to 6.5%, up from 6.1% the month before, the Bureau of Labor Statistics reported in early November.

October’s drop in payroll employment followed declines of 127,000 in August and 284,000 in September, according to revised BLS reports. Employment has fallen by 1.2 million in the first 10 months of 2008, with more than half of that decrease occurring in August, September and October. In October, job losses continued in manufacturing, construction and several service-providing industries. Conversely, the healthcare and mining sectors saw their job ranks grow.

And it’s going to get much worse before it gets better, Goldman Sachs Group Inc. (GS) has predicted. Goldman Sachs says the U.S. unemployment rate will spike to 9.0% by the fourth quarter of 2009, as corporate profits plunge an estimated 25% – and that’s after an estimated decline in profits of about 10% this year, Goldman analysts say. The U.S. economy – as measured by gross domestic product (GDP) – will decline by 5.0% in the current quarter, followed by declines of 3.0% in the first quarter of 2009 and 1.0% in the second quarter, Goldman analysts predict.

Those numbers are worse than Goldman originally predicted, and create an outlook similar to Money Morning’sprojections, which called for a credit-crisis-nurtured economic downturn that could last as long as 12-18 months.

The NBER yesterday (Monday) formally announced that the U.S. economy peaked and entered into a recession in December 2007. The U.S. Commerce Department estimated that the U.S. economy, as measured by GDP, rose 0.9% in the first quarter. In the second quarter, GDP advanced an estimated 2.8%. For the third quarter, GDP declined an estimated 0.3%.

Also this week, the U.S. Federal Reserve’s “We have marked down our forecasts for US real GDP in response to continuing signs of falling domestic and foreign demand, labor market deterioration, renewed tightening in financial conditions, and an apparent impasse in fiscal policy pending the transfer of power to the Obama administration in late January. As a result, we expect the unemployment rate to reach 9% by the fourth quarter of 2009, profits to fall 25% for 2009 as a whole following an estimated 10% drop this year, and the Federal Open Market Committee (FOMC) to use nontraditional policy tools more aggressively, as detailed below – Beige Book – due out tomorrow (Wednesday) – offers a look into activity within the various regions of the country.

Weekly Economic Calendar

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• U.S. Department of Labor/Bureau of Labor Statistics:
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• Money Morning Economic Outlook 2009 Series (Part II):
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 The U.S. Labor Department announced that the jobless rate reached 5.1%, but the markets held their own after the news to end narrowly mixed.

"[U.S. Federal Reserve] Chairman Bernanke implied that there is a strong possibility of a negative first and second quarter of 2008," Dr. Robert Sweet, an economist with MTB Investment Advisors, the investment advisory subsidiary of M&T Bank Corp. (MTB), said in a Money Morning interview.

"[Friday's] employment numbers confirm this possibility," Sweet added.

At Friday’s close in New York, the blue-chip Dow Jones Industrial Average Index was down 16.61 points (-0.13%), to close at 12,609.42. The tech-laden Nasdaq Composite Index increased 7.68 points (0.32%), to reach 2,370.98. And the broader Standard & Poor’s 500 Index rose 1.09 points (0.08%), to hit 1,370.40.

Payrolls declined for the third straight month as U.S. employers shed 80,000 jobs, more than forecast, the Labor Department announced Friday. Unemployment increased in March to 5.1% from 4.8% last month and is now at its highest level since September 2005.

"After three consecutive months of job losses, it is hard to argue that we are not in a recession," Joel Naroff, president and chief economist of Naroff Economic Advisors said in a note to clients sent after the report was released.

But market response to the news was subdued, as investors seem inclined to wait for first quarter earnings reports.

"The market is reacting well to what two months ago would have been disastrous news, but that may change after next week, when we get news from corporate America and what they think for the rest of the year – we may see some estimate guide-downs," Art Hogan, chief market strategist at Jefferies & Co., told MarketWatch.

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Applications for unemployment insurance dropped by a seasonally adjusted 11,000 to 330,000 for the week ended Nov. 17, the Labor Department reported last week.

While the report is no indication that the economy is well on its way to recovery, it does suggest that companies aren’t resorting to wholesale layoffs as they cope with the devastated housing and credit markets. Also, healthy employment bodes well for the holiday shopping season.

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The four-week moving average of claims, which smoothes out volatility, also fell by 750 to 329,750, its lowest level since October. The national civilian unemployment rate currently stands at 4.7%, low by historical standards. Indeed, prior to the long economic expansion that took up most of the 1980s, economists believed that 5% represented "full employment."

"We continue to believe that most statistical and anecdotal evidence continue to point to a relatively healthy labor market," Omair Sharif, an economist at RBS Greenwich Capital told CNN.

At this point, wage growth has combined with a stable job market to help offset the horrendous twin assaults of the housing slump and credit crunch. Unemployment has risen in the construction, manufacturing, and banking sectors, but those losses have yet to bleed into the greater job market, or to drastically affect the overall employment rate.

The U.S. Federal Reserve predicted unemployment would "increase modestly" in 2008 before rebounding in 2009 and 2010. The Fed has cut a key short-term interest rate twice this year by a total of three quarters of a percentage point and it now stands at 4.5%. The central bank must now decide whether another reduction is warranted or poses too great of an inflation risk.

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Employers added 166,000 employees in October, more than double analyst forecasts, the U.S. Labor Department reported Friday.

Most economists had only expected an increase of between 80,000 and 85,000 jobs. The report helped to ease concerns that the meltdown in mortgage markets and the heavy toll taken on homebuilding would spread to the broader labor market. It will also give the Federal Reserve a break from rate cuts in the face of growing inflationary pressures.

“The labor market continues to be inconsistent with fears of a recession,” said Dean Maki, chief U.S. economist at Barclays Capital and a former senior economist at the Fed, told Bloomberg News. “This report will increase the Fed’s conviction that it should keep rates unchanged in coming months.”

Service industries, which include banks, insurance companies, restaurants and retailers, experienced the largest workforce expansion. They added 190,000 workers in October, after taking on 127,000 new employees in September. Government payrolls grew by 36,000 during the month, after rising 23,000 in September.

Factory payrolls took the biggest hit, dropping 21,000 after decreasing by 17,000 in September.  The construction and lending sectors lost 5,000 jobs each, while finance, a sector that has been hit hard by the credit crisis, saw 2,000 payroll additions last month.  The unemployment rate held steady at 4.7%.

On Wednesday, the Commerce Department reported a surprising 3.9% GDP growth rate for the third quarter, outperforming analysts’ estimates by a large margin.  The employment report is further evidence that the U.S. economy is holding the line, despite the collapse of the housing market and credit crisis.

Every Silver Lining Has a Dark Cloud

While the report is overwhelmingly positive, some economists question the validity of the gains in the latest report, which will be subject to further revision.

“People got too excited about the job loss in August and they’re getting too excited about this gain,” John Silvia, chief economist at Wachovia, said in a recent CNNMoney report. 

It’s clear that Silvia and many other analysts expect much of this optimistic reading will soon be revised away, the same way that the 4,000 job loss originally reported in August has been revised twice, and is now regarded as a 93,000-job gain.

“It’s dealing with the month-to-month volatility in the sampling process,” Silvia said. “Clearly the 166,000 overstates growth. When the final numbers finally come in, it will probably be closer to the 80,000 gain everyone was expecting.”

Certain specificities within the report also came under scrutiny.

“The one warning sign in the report was a drop in trucking jobs,” said Joel Naroff, President and Chief Economist of Naroff Economics. “If we are not shipping goods across the country, there may be more weakness than meets the eye.”

Both Naroff and Silvia questioned the spike in public education hirings, which reportedly totaled 35,000.  The figure is likely the result of the Bureau of Labor Statistics catching up with seasonal gains from the start of the school year.

Regardless of certain inconsistencies the report still stands as a positive signal concerning recession and the U.S. economy. At least, that’s how the Fed will see it…

Fed Implications

The positive nature of the report suggests the economy, at the very least, isn’t falling apart. That means the Fed, which faced a backlash of criticism after slashing rates Wednesday, will be able to abstain from further rate cuts in the near future.

Fed policy makers cut the interest-rate target for loans between banks by a quarter percentage point to 4.5% on October 31.  This followed a half point rate cut at the end of September. 

The Federal Open Market Committee (FOMC) said in a statement that the cuts were meant to “help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets.”

However. many analysts second-guessed the decision, suggesting the move would have an adverse effect on the value of a dollar and, in conjunction with high oil prices, fuel inflation. 

Core prices, which exclude food and energy costs, rose at a rate of 1.8% in the third quarter, a 0.4% increase from the second quarter.  That may still be in the Fed’s comfort zone between 1% and 2%, but whether it will remain there remains to be seen.

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Declining domestic auto sales may lead to Chrysler LLC, the third-largest U.S. automaker, to cut 1,500 salaried and contract jobs, Bloomberg News reported yesterday (Tuesday), citing unnamed sources close to the company’s strategy.

These cuts are in addition to the 13,000 projected job cuts the newly private Chrysler already announced it would make in the next three years to reach profitability. As many as 415 of the cuts may be non-union, white-collar workers at the Auburn Hills, Mich., headquarters, the sources said. 

News of the cuts came while the United Auto Workers and Chrysler sat at the bargaining table. If they can’t iron out a resolution by 11 a.m. today, the assembly lines could stop and its operators will strike. The UAW and General Motors Corp. (GM) were able to avert a prolonged strike.

Only this time, the situation is a little different. With white-collar jobs also on the chopping block, both sides have more to lose.

“Feels like a strike is coming,” Lincoln Merrihew, auto industry analyst at TNS Automotive, said to MarketWatch. “The challenge may be all the new faces at Chrysler — they’re smart, but [they] have less experience with the UAW than does GM.”

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From Staff Reports

The Labor Department will release its September jobs report early today (Friday), the first such reading since the now-infamous "shocker "August payrolls report that stunned investors, sparked a stock-market sell-off and essentially forced the central bank to slash short-term interest rates.

The August jobs report, released Sept. 9, showed that the U.S. economy lost 4,000 jobs – the first decline in four years – and didn’t post the gain of 100,000 jobs that economists and investors had anticipated. It was a big miss. And that usually elicits a big reaction. This time was no exception: Investors sent stock prices straight down: The Dow Jones Industrial Average plunged 249.97 points, or 1.87 %, to close at 13,113.38.

Nine days later, with talk of a looming potential recession making the rounds, the U.S Federal Reserve surprised investors again, this time in a positive way, by cutting short-term interest rates by a bigger-than-expected half a percentage point. Stock prices have soared in approval: Early this week they set an all-time high with the Dow closing above the 14,000 level.

What are economists expecting now?

While economists and investors will be watching Friday’s report closely to see what it means for future Fed action, there will also an interest that transgresses interest rates. Stuart Hoffman, chief economist with PNC Financial Services Group, told CNN.com that that if the September jobs report is again much weaker than expected – especially if there’s another decline in the payroll ranks – it will be very bad news for the economy.

"I think the chance of a recession is less than a third," Hoffman told the news service. "If we see another drop in employment, especially in the private sector, I’d be surprised if not shocked, and very nervous. I might put the chance of a recession at 50-50. We might be hanging by our fingernails in that case."

Economists surveyed by Briefing.com are forecasting a 100,000 gain in payrolls in September – or roughly the projection that was made for the last jobs report that proved to be so far off the mark. Even if there is a payroll gain of that magnitude, the U.S. unemployment rate is expected to climb from 4.6% for August to 4.7% for September.

[It's also possible that the August payroll losses of 4,000 will be revised into positive territory, since August is one of the months that can elicit some of the largest revisions of initial readings, economists say].

Stocks have been directionless since Monday’s huge rally, which left the Dow sitting at a record high of 14,087.55. That advance followed several weeks of upward trading after the first central bank rate cut in four years. Investors didn’t want to place big bets ahead of today’s employment report.

Yesterday (Thursday), the Dow Jones Industrial Average rose 6.26 points, or 0.04%, to close at 13,974.31. The tech-laden Nasdaq Composite Index rose 4.14 points, or 0.15%, to close at 2,733.57. The Standard & Poor’s 500 Index rose 3.25 points, or 0.21%, to close at 1,542.84.
"It’s [been] a complete wait … to see what the employment numbers are," Todd Clark, director of stock trading at Nollenberger Capital Partners Inc. in San Francisco, told CNN.com.

Ideally, investors and economists are looking for "Goldilocks" results – those that are "just right."

A stronger-than-expected jobs report might upset investors, boosting the belief that there isn’t much room to cut interest rates anymore.

A report that is much weaker than anticipated would cause a big jump in concerns that a recession is a real cause of concern – even with rate cuts.
The best outcome: A jobs report that was slightly weaker than consensus forecasts would be the best for share prices, as it would increase the likelihood that the economy is strong enough to keep out of a recession – but that continued Fed rate cuts are probably needed to make sure that scenario comes true.

Said Nollenberger Capital Partner’s Clark: "This is going to have to be a just right, ‘Goldilocks’ number."

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Countrywide Financial Corp. (CFC) announced Friday that it plans to lay off 10,000 to 12,000 more employees — about 20% of its workforce — within the next three months. Most of the reductions will be from areas most impacted by the subprime mortgage meltdown.

In its announcement, the company took several jabs at U. S. Federal Chairman Ben Bernanke, who has remained mum about cutting interest rates at the Fed’s next meeting on September 18.

“Actual reductions could be lower should the interest rate environment and related market volume outlook improve. Based on current interest rate levels, Countrywide presently expects that total market origination volumes will decline approximately 25 percent in 2008 compared to 2007 levels,” the release said, not too subtly.

The tone is no different than a few weeks back, when CEO Angelo Mozilo threw a wet blanket on the Bank of America’s $2 billion capital injection into Countrywide.

The release also signals a changing course of direction for Countrywide. It has scraped almost its entire subprime loaning operation, and will focus on secondary market loans and/or “high quality prime loans” held in Countrywide Bank’s investment portfolio.

“As we carry out our plan, the company’s overarching focus is exactly where it has always been: to remain an industry leader in the U.S. residential lending business…” Mozilo said in the release.

But “focus” and position are two different things. While still the country’s largest lender, Countrywide has seen its stock nosedive 55% percent from three months ago, when all was seemingly well with the mortgage and credit markets. After the credit market turmoil erupted, Countrywide laid off 1,400 workers and tapped all $11.5 billion of its credit line.

And more bad news mounted yesterday (Monday), when AXA SA (AXA), one of Countrywide’s largest shareholders, cut its nearly 11% share of Countrywide down to 4.1%.

As most Money Morning readers know, we’ve been predicting that this was going to be a major worldwide financial problem since even before the major market declines and financial implosions began [Please see, “Never Trust an Investor With a Microscope,” “Sen. Dirksen: Allow Me to Introduce You to Standard & Poor’s,”

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In several of my economic-analysis reports leading up to – and immediately following – the address that U.S. Federal Reserve Chairman Ben S. Bernanke made at the Kansas City Fed’s annual economic symposium a little over a week ago, I said that an interest rate cut that Wall Street had been clamoring for was far from certain.

For one thing, Bernanke made it abundantly clear that Fed policymakers were not going to move on short-term interest rates to bail out Wall Street speculators (i.e. the hedge funds) and homebuyers who’d purchased their houses as get-rich-quick schemes, and not as warm domiciles. And with each successive economic report that appeared seemed to underscore the U.S. economy’s continued resilience and strength, I cautioned that the likelihood of the clamored-for cut in short-term interest rates was growing increasingly unlikely – even though the stock market has already “discounted” that rate cut into securities prices.

And with the odds of a near-term rate reduction seeming to be so unlikely, I said there was virtually no chance that the central bank would reduce rates ahead of the Sept. 18 meeting of its policymaking Federal Open Market Committee (FOMC). With the growing global credit crunch that’s spun out of the subprime-mortgage crisis, many investors actually have been expecting the Fed to act soon to keep the problem from worsening.

Keeping Watch

In my earlier research notes, I said that the Fed would be carefully scrutinizing both real-time evidence and traditional data, in particular studying each economic report, looking for any indications that the economy was either weaker than thought, or in an outright decline. I didn’t think the Fed would find anything strong enough to justify an interest-rate reduction.
But even with those comments, I issued several caveats:

• First, I said that if the troubling economic reports were released, they were likely to roil the markets.
• And, second, I said that if the Fed opted to not cut interest rates – the scenario I was predicting – that could badly roil the markets, too.

So far, I’ve been proven right on the first count – Friday’s stunning and highly worrisome jobs report truly roiled the markets – time will tell if I’m right on the second, too.
Given this development, I believe that Bernanke and the current FOMC board are very conscious of prior Fed errors (more on that in a bit) and will act with appropriate restraint. The upshot: I am now anticipating a quarter-point reduction in the Federal Funds rate following the Sept. 18 FOMC meeting.

We can expect the volatility we’re seeing right now to continue right up to and perhaps even through the Fed policymakers’ meeting.

Let’s take a look at what’s providing the fuel for this most-volatile fire.

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The Unpleasant Surprise

Friday’s employment report had been highly anticipated because U.S. payroll figures are viewed as an early indicator of an economic downturn [To read the Money Morning news report on Friday's jobs report - and the shattering stock-market reaction - click here].

The economy actually shed 4,000 jobs in August, marking the first payroll decline in four years. What’s more, the number of jobs added in June and then July were revised downward – by 57,000 in June and 24,000 in July.

Earlier last week, the economic picture had been one of resilience:

• The ISM Index (manufacturing), while lower than the 14-year high in June, still indicated a moderate rate of growth, and an improvement in actual demand and production that lead to sustained in input costs, but with little impact on inflation, because of the globalized economy.
• ISM Services, which came in stronger than expected, showed continued strength and no signs of any weakness.
• Construction, as expected, is slumping, led by residential construction.
• Productivity was strong.

And this picture was reinforced by Fed governor speeches during the earlier portions of last week, each of them pointing to the U.S. economy’s actual strength, despite the credit-related financial turmoil.  In a similar sense, many regional Federal Reserve Bank presidents also indicated that economic activity remained strong in their regions. And the Beige Book Report last Wednesday pointed to a similar story. With all this evidence, nobody could have expected the “shocker” employment Friday morning.

Employment losses for the first time since 2003 – this changes the outlook.

The headline number, minus 4,000 jobs in the August, with major revisions down in prior months left the average gains for the last three months at 44,000 and showed a strong decline in manufacturing of 46,000 jobs and construction of 22,000 jobs.

Since the end of the first quarter, we’ve been pointing to the high correlation between construction (as measured by finished homes) and employment. And we’ve been predicting a slowdown in employment, although not of this magnitude.

The size of this decline could very possibly be due to data integrity, which will be revised in coming months, but not enough to bring it to levels consistent with the other indicators we mentioned.

A Look Ahead

What is clear is this: This loss of jobs very clearly points to an economic system that is slowing down, and with a six-month average core PCE deflator [the Fed's preferred inflation gauge] already running near the middle of the Fed’s comfort zone, this number gives the Fed tangible evidence to justify starting to cut rates without being seen as bailing out speculators.

In this situation, the interest-rate sensitive businesses (particularly Wall Street investment banks) have continued to clamor for an interest-rate reduction. And on the basis of Friday’s jobs-report number, their share prices quickly adjusted to discount additional subsequent cuts ahead.

As I said earlier, as we move close to the Sept.18 FOMC meeting, we will probably experience further market weakness; many investors now believe the Fed to be “behind the curve” – that is, way late in cutting interest rates to stave off a significant economic slowdown or downturn.

I do not agree with this view.

Indeed, as I’ve also written, if the Fed has learned anything at all about adjusting interest rates to manage the economy, in virtually every similar instance in the past, the market and the Fed have over-reacted to slowdowns and crises, leading later to an over-stimulated economy.

I believe that Bernanke and the current FOMC board are a conscious of prior biases and will act with appropriate restraint this time. As a result, I am now predicting a 25-basis point reduction in the Federal Funds rate on Sept. 18.

This will have a big – and beneficial, I believe – impact on my strategies with the trading services that I manage.

I expect the economy to quickly recover into the end of the year, the heightened volatility that I expect we’ll see this week could well provide us with better buy-in points into the stocks that I have been watching with an eye toward purchasing, including:

• Investments in the fast-growing emerging markets.
• Financial-services stocks, which will greatly benefit from expected interest-rate reductions.
• Energy stocks.
• Technology shares.

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For U.S. Federal Reserve Chairman Ben S. Bernanke and policymakers at the central bank’s Federal Open Market Committee, the verdict is in.

A mediocre – or even week – jobs report for the month of August might have been enough to secure an interest-rate cut at the FOMC’s Sept. 18 meeting. But investors who were wishing for just such a scenario got more than they bargained for with the release of an abysmal employment report on Friday. The cries of “Recession!” could be heard up and down Wall Street. And now Bernanke & Co. may be forced to provide relief in the form of a rate cut. The only question now is how big that rate reduction will be.[To read the Money Morning news analysis on Friday's jobs report - and the stock-market opportunities it may create - click here].

The economy shed 4,000 jobs last month marking the first decline in payrolls in four years. The number of jobs added in June and July was revised downward.  June’s increase was reduced by 57,000, and July’s by 24,000. Factory payrolls took the biggest hit in August, dumping 46,000, the most since 2003. After losing 14,000 jobs in July, the building industry cut another 22,000.  Despite the losses, however, unemployment remained unchanged at 4.6%.

Investors reacted violently.

The Dow Jones Industrial Average plunged 249.97 points, or 1.87%, to close at 13,113.38. The Standard & Poor’s 500 dropped 25 points, or 1.69%, to close at 1,453.55. The tech-laden Nasdaq composite index dropped 48.62 points, or 1.86%, to close at 2,567.70.

The jobs report had been highly anticipated because the payroll report is considered a very good early indicator of an oncoming economic contraction.  There had been a great deal of uncertainty in the weeks leading up to the report’s release, and rampant speculation about whether or not the Federal Reserve would cut the main interest rate. Earlier this week, it appeared to be a win-win situation. If the jobs report were good, it would have meant that the economy was coping well with credit hardships and a weak housing market.  A weak jobs report would have forced the Fed to act, but a report this negative caught just about everyone off guard.

So, now, the floor is open to discussion concerning just what kind of shape the economy is in, and what the Fed should do about it.

According to Joel Naroff, president and chief economist of Naroff Economics: “The job situation has turned dramatically, removing any impediment to a Fed ease.”

In fact, it’s no longer a question of the Fed having to prove it’s not playing to Wall Street speculators or private investors who tried to make a big score on a house.

“This report is weak enough that the Fed has to show it is getting out in front of the weakening economy and not lagging behind, as it had been,” Naroff said.

Economists at Goldman Sachs Group Inc., (GS) adjusted their prediction for the Fed’s next move, raising their rate-cut forecast to half a percentage point.
In an e-mailed statement, Representative Barney Frank (D), who heads a congressional committee that oversees the U.S. Federal Reserve, made a point to say, “A strong response is required – specifically, a meaningful interest-rate cut.”

Still, there are others who disagree, and feel as though the August jobs report was something of an anomaly. As U.S. Treasury Secretary Henry Paulson pointed out in an interview with Bloomberg Television, “Data does not always move in a straight line, so occasionally you will find some surprises. The economy will continue to grow in the second half of the year.”

His perspective seems to be in the minority, however.

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