Payrolls gain is the golden indicator for the US economy at this stage because it reveals conditions in crucial areas and is the catalyst for the next step of the recovery process.

Revelations

 

First, rising payrolls is a sign that businesses continue to face more demand.

 

It would also answer the question of American competitiveness. Some critics have argued that America and the American workforce is not competitive on the global stage, so even if the global economy recovers, businesses and jobs won't come back to the U.S.

 

If the US were to enjoy sizable payrolls gain, though, it would put to rest these concerns.

 

A tendency of businesses after the Great Recession is to only hire to meet immediate demands. In other words, they want perfect fits with matching experience but don't want to hire people they have to train.

Currently, workers who are highly-trained and experienced in hot sectors generally have jobs already.  If hiring were to pick up, a bulk of it will be people who need some on-the-job training.

 

If companies become willing to hire and train these kinds of employees, it indicates they foresee increasing demand in the long-term. In fact, hiring of any kind generally points to confidence in the long-term because employees represent a semi-fixed cost.

 

Catalyst

 

Payrolls gain in itself would spark the next phase of the US economic recovery.

 

So far, big corporations and the rich have recovered well. Wall Street and the financial system are doing fine.  Global trade and emerging market countries have rebounded impressively. The biggest drag, however, is US consumer confidence, which is dampened by the poor jobs market. In fact, almost everything wrong about the economic recovery is related to that factor.

 

The housing market, for example, has slumped despite record low mortgage rates because people are too worried about joblessness. Consumer spending is weak for the same reason. 

 

The US jobs market is poor, despite recovery in almost every other area, because employers prefer to rely on productivity gains, outsourcing, and contracting work to foreign countries to meet increasing demand; they are pulling out all stops to avoid hiring US workers who are comparatively expensive and semi-fixed costs.

 

However, US businesses can't rely on those methods forever. At some point, they will need to hire US workers.

 

When the combination of global demand, continued US recovery, and corporate strength pushes US companies past that point, they will hire US workers and spark a virtuous cycle of rising employment, increasing consumer confidence and spending, and a better environment for businesses, which, in turn, will create even more US jobs.

 

Furthermore, it will take the economy off the support of government stimulus.

 

So far, the US recovery has relied on government stimulus because final private demand has been modest due to weak consumer spending.

 

If payrolls gain picks up, however, consumer spending will follow and the recovery will be led by the private sector and become self-sustaining.

 

What to Look For

 

The headline payrolls gain is important. If the economy sustains an average of 100,000 gains per month, it's a good start.

 

The nature of the gains is also important. 

 

What's not preferred is a disproportionate number of temporary workers at low-paying and low-skill positions.

 

Instead, what helps more is jobs that are full-time, high-paying, and require high education and skills.

 

Gains in these jobs will put money in the pockets of consumers, give them the confidence to spend it, increase the US national output, allow America to stay competitive, and usher in a phase of accelerated economic growth that's led by the private sector.

 

Email Hao Li at hao.li@ibtimes.com