As the economy winds through housing troubles and turmoil in credit markets, the picture emerging from data measuring the health of the job market is clouded.

Firms are showing a reluctance to lay off workers at the same time they are apprehensive about hiring new ones, creating a puzzling picture, economists say. Usually, low layoffs coincide with robust hiring.

What they are doing is freezing job conditions for the moment. They are not letting anyone go, (and) they are not necessarily hiring anyone until they get a clear picture of where the economy is headed, said Bernard Baumohl, managing director of The Economic Outlook Group in Princeton Junction, New Jersey.

The mixed signals have left analysts pondering whether the economy is simply slowing or headed toward a recession.

A government report on Thursday showed the number of U.S. workers filing new claims for unemployment aid fell by 15,000 last week, the second straight weekly decline. Analysts had expected the number to rise.

That report was out of step with the government's main measure of employment released earlier this month, which showed the economy shed 4,000 non-farm jobs in August, the first drop in four years.

On the surface it looks like an inconsistency, doesn't it? We have great unemployment claims numbers, and yet we've got rather depressing numbers on employment, Baumohl said.

Omair Sharif, a strategist at RBS Greenwich Capital, in a research note on Thursday wrote: This divergence is a bit puzzling, as we know that a significant number of mortgage brokers have closed up shop and laid off their employees in recent weeks.

The surge in layoff announcements in the financial sector in the wake of the credit market turmoil that began in late July failed to materialize in the data yet again, he said.


Deepening the puzzle, a U.S. Labor Department report on state and regional employment released on Tuesday offered a hint that the nation's job market may have held up better in August than the nonfarm payroll count suggested. The report showed that U.S. employers in 41 states added to payrolls in August.

The Liscio Report, a newsletter that focuses on state-level data, said the statewide data implied a national gain of nearly 160,000 jobs in August, although the government cautions that adding up the figures multiplies any counting errors at the state level and could cause significant distortions.

It's a bit shocking to see the number of new jobs reported in the (nonfarm payroll) series fall to just a third of those reported in the state series, the news letter said. Guess that truly deserves a 'stay tuned.'

Some analysts say the economy does not have strong legs to stand on, relying solely on consumer spending and exports.

Americans have been hit with one assault after another and rarely have we seen so many things happen at the same time, said Baumohl, referring to tightening credit conditions, record high oil prices, and the outlook for an increase in heating oil and gasoline cost, among others.

This could be in many ways a perfect storm, Baumohl said.

Consumer spending, which fuels two-thirds of the economy's growth, could hold the key as to whether the job market maintains some vigor.

A Commerce Department report on Friday showed consumer spending rose 0.6 percent in August, the strongest gain in fourth months.

Despite the cooling of the labor market over the summer, consumers are still spending, said Gary Thayer, chief economist at A.G. Edwards in St. Louis, Missouri.

Economists do not expect a repeat of August's surprise employment drop, but at the same time they say forecasts in excess of 100,000 new jobs per month are overly optimistic.

If you see hiring above 100,000 it means businesses are still quite optimistic about the economy and there are just too many things that have occurred in the last two (to) three months that would leave a lot employers much more cautious about hiring, said Baumohl.