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Just in case you’ve been living under a rock, let me bring you up to speed… 6.7 million jobs have been lost since the start of the recession, bringing the nation’s unemployment rate to 9.4%. It’s no surprise that the Fed has expressed some optimism over recovery but still remain cautious over the labor market. Poor employment clouds consumer spending because people will not spend if they are scared about possibly losing their job.

And what do labor fears do for the worker? Well, it kind of works out for companies. Why? It makes me people work harder! Productivity has gone up by 6.6% in the past quarter, the highest in 6 years! In order to survive, companies have slashed their payrolls, bringing labor costs down by 5.9% from a year ago. In turn, more of the work is redistributed to the remaining work force. At the same time, I suspect that those who still have jobs are working harder in order to keep their jobs.

We were already treated to a sneak preview on job losses last Wednesday when the ADP employment change printed that 298,000 people lost work. Despite the less-than-impressive result, it was an improvement from the 360,000 job cuts in July.

The NFP report, which is due this Friday, is expected to report that 223,000 jobs were lost in August. Considering that the NFP’s July reading had job losses at 247,000, it would be a disappointment if this month’s report came out higher than that. Job losses have been on a steady decline, after they had topped 600,000 between November 2008 and April 2009. It peaked as high as 663,000 just this March.

Based on the previous data and the recent developments across the industries, private firms have likely slashed its labor force at a slower rate. While we cannot exactly predict if tomorrow’s outcome will come better-than-expected, the previous data especially regarding the improvement in manufacturing and housing industry plus the latest ADP survey point to a slowdown in job termination.

Could the easing pace of job losses be a result of increased hiring across all industries? Are the government stimulus programs that promise more job creation starting to bear fruit?

The auto industry, a sector that has been heavily battered by the economic recession, has shown signs of picking up. Sales and production seem to have rebounded, which indicates that hiring could soon follow. Fresh out of bankruptcy, General Motors Co. and Chrysler Group LLC are benefiting from the government’s “Cash-for-Clunkers” program. This program, which has produced around 700,000 automobile sales, has boosted output so much that GM called back 1,350 union workers in order to accommodate the uptick in production.

Other sectors injured by the recession, such as manufacturing, construction, and financial industry, have shown signs of stabilization too. Analysts believe that it won’t take long before a recovery in hiring follows. Also, the temporary-help industry may have added jobs in August for the first time since the recession began.

Meanwhile, gloom and doom economists believe the downtick in July’s unemployment rate was merely an illusion. The fact is companies shed 223,000 jobs in July and the only reason the rate went down was that 400,000++ Americans who were looking jobs the month prior stopped. Note that the unemployment rate does not include people who aren’t actively searching for work. These people felt so disheartened about the country’s labor conditions that they simply sat on their hands in July. Assuming the unemployment rate considers people who discontinued looking for work as unemployed, economists predict that joblessness would peak above 10% well into 2010…

I mean, how can you find a job when no one’s hiring? Hah, and headlines news headlines say job losses would probably decline at a slower pace… More like there are hardly any jobs left to cut! A truly bleak picture… but I guess that’s how things always are – contrasting opinions here and there.

Let’s say that tomorrow’s outcome shows that payrolls decline at a slower pace. How will the result sway the markets? While improvements in any sector of the economy, especially the labor market, typically spurs confidence among market participants, this week’s price action did not quite conform to that common notion. Despite better-than-expected figures from Chicago PMI, ISM manufacturing PMI, and pending home, capital markets still declined due to speculation that positive data has already been priced-in. As usual, the safe haven currencies like the JPY and USD took charge when markets fell.

Will the same thing happen tomorrow? Are we in for more terminations or will employment see salvation? For the labor market, Friday is judgment day.