Jobs Front and Center in Coming Week

Updated from 02/27/10

NEW YORK (TheStreet) -- Investors will turn the calendar another page in the coming week, but their focus will be on the same old thing: whether the U.S. can finally capture the elusive jobs growth needed to boost confidence in the sluggish recovery.

Stocks managed gains in February, despite sovereign debt fears in Europe and concerns due to uncertainty about the economy. The Dow Jones Industrial Average gained 2.6% during the month, as the S&P 500 added 2.9%. Jitters about Greece's debt and eurozone difficulties may linger into the coming week.

But the nonfarm payrolls report by the Labor Department, due Friday, looms large, as the nation's labor market struggles remain the economy's sticky wicket.

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Lawmakers and regulators turned their gaze more intently on the problem this past week. The Senate passed a $15 billion jobs stimulus bill. Among other items, the package included a social security tax exemption on each new hire for the rest of the year. In his testimony to the House Financial Services Committee on Wednesday, Federal Reserve Chairman Ben Bernanke also said labor market woes remain a headwind in the face of a sustained recovery.

Firms managed to bypass hiring by cutting costs and boosting productivity in recent quarters, meaning employers have learned to do more with less. But there's a feeling that payrolls have been cut to the bone. Many agree any uptick in jobs, and subsequent hike in consumer spending, will need to lead growth going forward. And that thesis has ramifications for investors' psyches.

"We need to see an improving employment number," said Michael James, managing director at Wedbush Morgan Securities. "Until we start seeing the employment number getting better, my opinion is that we will remain in a trading range."

James' sentiment is illustrated by the market's muted reaction to some positive economic news Friday. While the economy grew more than originally estimated in the fourth quarter, it was an improving inventory picture, not consumer spending, that led the uptick. In other words, until the labor market improves, traders will have difficulty trusting any positive trends.

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