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This Friday, we’ll be getting another dose of unemployment data as the Non-farm Payroll report is on deck. Unemployment in the US is seen to hit 9.9% in October, with 173,000 net jobs lost in the month. If forecast holds, it would be the first time it would dip below the 200,000 handle this year. This would mark the smallest round of net job losses in over a year.

Can we really expect this though? Recent data suggests… Maybe, just maybe. Last week, we got a nice surprise as the third quarter GDP showed growth of 3.5% – the first positive figure in five quarters. With signs of improvement in the housing market and manufacturing sector, should we celebrate Thanksgiving early?

Well, the Fed would say… not so fast. While they recognize these improving economic conditions, they still point out that the labor market still has a lot of room to improve. The question is: Is it truly picking up? Let’s take a look at some past data.

According to the previous NFP reports, the net monthly job losses peaked at a staggering 651,000 in February this year and have stayed above the 500,000 mark until April. Since then, the amount of jobs lost has gradually levelled off and is, like I mentioned, expected to have fallen below 200,000 in October. If this trend continues, monthly job losses could even fall below 100,000 come 2010, just like in those good ole pre-recession days!

While 200,000 still seems rather large, it has left market participants pumping their fists and slapping high fives. Compared to the 663,000 figure from last March, the recent monthly job losses look like my first car – not pretty but it’ll do!

The same could be said about weekly unemployment claims. For the week ending October 31, the number of individuals who filed for unemployment benefits cooled to 530,000 from its peak of 669,000 back in March. Moreover, despite firms being low in cash, wages have continued to rise consistently by about 0.1% to 0.3% every month.

In any case, the market’s reaction to weak employment figures might be cynical at times. But hey – I can’t blame people for seeing the glass half full right?

Just how long will the market stay delusional about the country’s labor market? If the pace of monthly job losses remains for a year, simple mathematics will arrive to about 2.4 million job cuts. I don’t know about you but that’s a big number! The country’s unemployment rate currently stands at 9.8%. The figure is even seen to surpass 10% by mid-2010. 10-10? Now that’s unlucky in my Feng-shui book!

At the center of all this mumbo-jumbo about the recession, it’s really all about the state of employment and this, my forex friends, is where the problem lies. The biggest issue facing the labor sector is that recovery in this sector tends to lag behind for quite awhile. During the 2001 recession, when the dot-com bubble collapsed, it took almost two years after the US economy posted GDP growth before job creation resumed and became consistent.

Here’s what I see: the US has expanded its debt by $1.5 trillion in the span of a few months yet the condition of the labor market is back to where it stood nine years ago. That isn’t what I would call progression! What this tells me is that that the money needed to invest and create jobs is instead used to pay off the massive amount of debt our government has incurred, which would eventually strain the recovery of the labor market.

Since we saw our first GDP growth during the second quarter this year, we could see hiring only pick up midway through 2011 at the earliest. Given the fact that this recession is considered as the worst since World War II, I suspect that growth in the labor market would take much longer than that as businesses become more cautious in their hiring practices. Heck, I’d go as far to say that Huck can become a super trader well before employment starts to pick up. Not that I don’t believe in her – I’m just saying that the employment situation doesn’t look too rosy!

Of course, we won’t know for sure until the buzzer is blown, and until then all we can do is watch the data and see how traders react. As always, trade safe, especially during the “mother-of-all” economic releases in the US jobs report tomorrow. Good luck and good trading!