Despite continued signs that the U.S. economic recovery is on track, corporate America has been pretty reluctant to ramp up its hiring in the past several months -- something economists say is the missing piece of the recovery puzzle.

With that in mind, Wall Street and Main Street will be closely watching Friday's May

employment report, considered by some the single best measure of the overall economy, and one of several crucial economic reports due next week.

"Most

indicators of economic recovery have been unfolding the way people expected, with negative turning to positive, but the only thing that hasn't happened yet is we haven't seen acceleration in job growth," said J.P. Morgan economist Jim Glassman. The April jobs report disappointed many economists, as payrolls grew only 43,000, well below expectations for an increase of 60,000, while the unemployment rate rose to 6% from 5.9%.

So far, economists have mixed expectations for the May report, forecasting that new payrolls grew by 70,000, while unemployment ticked up to 6.1%. But some attribute the increase in unemployment to continued distortion from the government's extension of unemployment benefits. Weekly jobless claims dipped only slightly in May after surging due to such an extension at the end of March and through April.

ABN Amro economist Steve Ricchioto, who predicts payrolls grew 50,000 and unemployment held steady at 6%, says the slow job growth doesn't worry him. "These kinds of numbers won't derail the consumer," he said. "To the extent that companies feel they need to have a sustainable level of demand, it's a little premature to go out and hire." Ricchioto expects gross domestic product to grow 2.5% in the second quarter and 2.7% this year.

Made in the U.S.A.

The market will also be focused on Monday's release of the May

purchasing manager's index next week, a pretty reliable report on the health of manufacturing sector, as well as May vehicle sales, May non-manufacturing spending, May chain-store sales and April construction spending.

The manufacturing sector has been growing timidly since February, as companies slowly rebuild depleted inventories, and it's expected to exhibit a similar pace for the month of May. On average, economists expect the purchasing manager's index to increase to 54.5 from 53.9 in April. But that would be down from 55.6 in March and 54.7 in February. A reading above 50 indicates expansion.

Friday's Chicago manufacturing index, sometimes a good predictor for the national index, surged to 60.5 in May from 54.7 in April and well above expectations for 55, but Paul Kasriel, chief U.S. economist at Northern Trust of Chicago, said he doesn't expect the national index to show the same kind of growth.

Economists are expecting May vehicle sales to maintain their pace of April, a good indication that consumer spending is holding up. "I like to look at car and truck sales," says Kasriel. "It gives me a lot of information as to what's going on in the heads of American consumers -- when we feel good we buy cars," he said.

Fog Lifters

In general, economists expect next week's economic data to show the economic recovery is plodding along, although perhaps not at the rate some had hoped. "The data is likely to show the recovery is on track and the economy is doing fine," said Ricchioto. "It's not as robust as perhaps the equity bulls would have liked to have seen. It's not as robust as the telecom debt holders would like to have seen. But it's good growth, and it's the kind of growth that's probably the most healthy right now," he said.

If no new warnings about terrorist attacks or nuclear war develop, the unfolding economic recovery could take precedence in the market and relieve some of the recent pressure on stocks, said Barry Hyman, chief market strategist at Ehrenkrantz King Nussbaum.

"It's been almost two weeks since Cheney's horrific speech, and the effect of it seems to wear down a little bit," he said.

But while the economic story could bring traders and professionals back into the market, Hyman doesn't expect the Average Joe investor to return to stocks for a while. "It's going to take a strong earnings picture and higher prices in the major averages to bring the investor back," he says.

Big earnings reports due next week include

Comverse Technology

(CMVT)

,

National Semiconductor

(NSM)

,

Loudcloud

(LDCL)

and food and drug outlet

Albertson's

(ABS)

.

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