For Obama, jobs are first priority

With the crush of media coverage surrounding the AIG (AIG) bonus issue, some may argue that the Obama administration's ability to successfully navigate its resolution, along with financial system stabilization, will say much regarding how the public judges the new administration's performance.

More accurately, however, AIG's performance and its impact on the financial system's health, will play a large role in public attitudes toward the administration -- as a functioning banking system is intrinsic for successful commercial operations -- but it certainly won't be the only performance metric. The other metric concerns the driver of corporate revenue and earnings growth: job growth.


Two economic bellwethers
Hence, investors should keep their eye on these key statistics: the U.S. unemployment rate, currently high at 8.1%, and the number of unemployed / underemployed individuals, commonly referred to as the 'underemployment rate,' which stands at an awful 14.8%.

The Obama administration could get AIG's executives and key professionals to pay back every bonus dollar and repay the remaining roughly $200 billion federal government investment in the company, as well, but those data points won't mean much to investors and the public at large, if employment doesn't trend in the correct direction. According to U.S. Labor Department data, the number of Americans without work, or who are working part-time because they can not find full-time work, is about 20 million citizens.

Why the emphasis on reducing unemployment? It's very hard for the U.S. economy to grow adequately, and by extension, for corporate revenue and earnings to grow, without job growth. And lack of revenue / earnings growth almost always means rough times are ahead for the U.S. stock market.

Also, although the Obama administration certainly did not cause the financial crisis or the recession, political science survey research teaches us that the administration in power at election time will be held accountable for economic problems -- whether they are of their own making or not. To paraphrase President Harry Truman, from a voter standpoint, 'the buck stops with the president.'

Tough task ahead
And as investors might sense, lowering unemployment won't be easy: the administration has to identify and / or create engines of growth for the economy -- it's the main reason the fiscal stimulus package was passed. In addition, Obama will need a little bit of luck -- perhaps a new sector that offers hundreds of thousands of new jobs, or an innovative technology that can help transform business processes and can create export revenue. The Obama administration is hoping that alternative energy sources (solar, wind power etc.) will serve as one growth engine, with infrastructure spending serving as another; more than likely, they'll need a third and four growth engines.

What's a realistic job growth scenario for the next 12 months? First, stop the bleeding: the U.S. economy is losing jobs at a pace of 500,000 per month: if the Obama administration's policies can lower that to 100,000 jobs lost per month by June / July, that would be a small victory. Then, say about September / October, if the economy starts registering net job gains per month, that would represent another milestone.

The final hurdle involves getting monthly job gains consistently above 200,000 and that's no inconsequential number: the U.S. economy must create 100,000-125,000 jobs per month just to keep the unemployment rate from rising.

Economic Analysis: Historically, housing would be a source of job growth during an expansion. However, due to the housing sector's previous bubble / current bust, that's not likely to be the case, at least for the first year of the recovery, which only underscores the magnitude of the Obama administration's task.

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Financial Editor Joseph Lazzaro is writing a book on the U.S. Presidency and the U.S. economy.
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What sector do you think could create a lot of jobs in the United States? Let us know what you think.