Into Jobs Report, Investors Fed up With Washington

NEW YORK (BankingMyWay) -- Staring down the barrel of Friday's national unemployment number, investor patience with public policymakers when it comes to the economy is at a breaking point.

In the release of the Federal Reserve's Open Market Committee meeting on Tuesday, quantitative easing optimists seized on the Fedspeak use of the word "closely" -- as in closely monitoring the slowdown in the economy, as a signal that QE3 is all but assured.

Given the economic slowdown, the government's own reduction in its growth projections, and the situation over in Europe, the Fed could simply be telling the market that it is "closely" watching the economy because Big Ben wants to make sure that as far as the Fed's public face goes, it doesn't look like it has its head in the sand. That neutral view would still leave investors with plenty of reason to be frustrated about the economic situation leading up to Friday's nonfarm payroll data.

For the record, one forecast of economists expects the Labor Department release to show that the unemployment rate remained flat at 8.2% in July.

Gallup has a similar outlook, with unemployment at 8.2% for July (Gallup seasonally adjusts its unemployment number, resulting in the expectation of the July rate at 8.2% actually being higher than the 8% seasonally adjusted June number. However, the market is attuned to the government's nonfarm payroll data change month over month, which was 8.2% in June, implying the jobs report outlook is flat.)

The wildcard is the ADP monthly jobs report, released earlier this week, which was more bullish, estimating that the U.S. economy produced 163,000 jobs in July 2012. The problem is that the ADP report has a very weak track record of serving as an indicator for the nonfarm payroll report.

Against this backdrop, U.S. investors are looking at a glass half-empty," especially with the U.S. headed for the so-called "fiscal cliff" if Washington doesn't deal with the debt ceiling issues in the fall. That's the conclusion drawn from a joint survey conducted by Wells Fargo (WFC)and Gallup, and released on August 1.

The survey finds that U.S. investors are increasingly sour on "politically divided federal government," and a vast majority say it is the "top factor" affecting investors.

The survey, conducted monthly, shows fading investor optimism. Its "optimism" index stood at 40 in February 2012, but slid to 24 in May and stands at 16 in July. Only 41% of all investors say "now is a good time to invest in the markets" as opposed to 48% in May and 52% in February.

The Wells Fargo-Gallup report also focuses sharply on the "fiscal cliff" issue, drawing the following conclusions:

54% of survey respondents say they are highly aware of the U.S. debt issue.

61% say that the U.S. economy will sink into recession if Congress doesn't take steps to avoid the fiscal cliff.

71% say concern among consumers toward the U.S. debt picture will cause them to spend less, thus further hampering economic recovery.

75% of investors surveyed expect the results of the upcoming presidential election will "impact their net worth," with 43% saying the results will have a "major impact."

37% of respondents said they were better off than they were in 2008, while 33% said they were worse off.

Fewer investors are saving money. Only 24% of U.S. investors are saving more money than they did before 2008, while 43% said they are saving less money.

Maybe it's good news that Americans are tuned in to the U.S. debt issue, and increasingly, are demanding that politicians work out a viable solution. The bad news is more and more of them doubt that will happen, and that bad economic times loom as a result.

"People watched the impasse of the debt ceiling negotiations last summer and the effect the breakdown had on the markets and 401(k) balances, so it makes sense that investors are attuned to policy affecting debt and taxes," explains Joe Ready, director of Wells Fargo Institutional Retirement and Trust. "Still, investors are clearly telling us they worry about a recession."

The way things are going in Washington, and in the economy, they should be.

By Brian O'Connell

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