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Core Private Sector Jobs Key to Friday's Report

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

NEW YORK ( TheStreet) -- The Labor Department is expected to report 185,000 jobs were created in April. After gains of 194,000 and 216,000 in February and March, this could indicate the economy is accomplishing some moderate momentum.

However, first quarter GDP growth was a disappointing 1.8%, and many businesses can easily accommodate modest growth in demand by increasing productivity. Indeed, over the last month, first-time unemployment claims have risen to near recession levels indicating slower-growing business are laying off workers again. A disappointing jobs report would indicate the economy is slowing further and in danger of slipping into a second recession.

Earlier this year, economists were more optimistic about first-quarter growth, but the expansion was slowed by: higher gas prices and rising health insurance costs that diverted consumer dollars from jobs creating spending; uncertainty about federal budget negotiations, fears of a U.S. debt downgrade and still weak bank lending that discouraged private business investment; weak defense outlays and state spending cutbacks and tax increases; and rising oil import costs and U.S. drilling activity slowed by tighter regulations.

Most forecasters believe some of these forces are abating, second-quarter growth will come in above 3% and full-year growth will be at least 2.5%.

Friday, the key variable to watch is core private sector jobs growth -- private jobs less the heavily subsidized private health care and social services sectors, and temporary business services.

Core private sector jobs have the potential to set off a virtuous cycle of hiring, consumer spending and more hiring. In February and March, this barometer of private sector vitality gained 183,000 and 157,000 new positions. A similarly strong core private sector gain will be needed to add 185,000 to 215,000 new jobs, overall, each month.

Still, job gains in the range of 200,000 a month are not enough to push unemployment down to acceptable levels.

The economy must add 13 million private sector jobs over the next three years -- 360,000 each month -- to bring unemployment down to 6%. Core private sector jobs must increase at least 300,000 a month to accomplish that goal.
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