For the first time in more than four years, the Federal Open Market Committee will meet in the same week in which the Bureau of Labor Statistics issues its monthly employment report.

Cynics might suggest we could look to the announcement Wednesday following the FOMC meeting for a hint of what the BLS will report two days later, reacting in advance, but there’s enough for the FOMC to chew on even before the labor numbers are reported.

The Fed policymakers convene Tuesday on the heels of a strong -- indeed, slightly stronger than expected -- report that the economy grew at a 3.5% annualized rate in the third quarter, the fastest pace since third quarter 2007 and the first growth at all in a year. (The four-quarter contraction was the first since 1938.)

A strong and strengthening economy could set the stage for the Federal Reserve to pull out the props or, in the words of William McChesney Martin who served as chairman of the Fed from April 1951 through January 1970, “to take away the punch bowl just as the party gets going.”

Not so fast. There were so many asterisks and qualifications to the GDP report that it was hard to see where the stimulus ended and the economy began. Not that that’s a bad thing. As the economy was sinking, it was the Fed which seemed to be acting alone in trying to simultaneously both bail and put fingers in the dikes. Fiscal policy, the province largely of the White House, was essentially non-existent until January, when the Administration put its foot on the gas pedal to fire up the economic engine.

That there may be unintended consequences of the heavy hand of the Administration -- just as there are consequences to putting regular gasoline into an engine requiring more costly premium -- cutting taxes and growing spending to jump-start the economy is a given and not to be “mis-underestimated.” But the GDP report demonstrated convincingly the growth would have been considerably less if the government had not stepped in.

The cash-for-clunkers program, for one, added about 1.7 percentage points to the GDP growth rate, almost half of the total growth. Residential investment, primarily home construction, kicked in another 0.5 percentage point, as home builders gained some confidence from the first time homebuyer tax credit that housing stabilization was underway.

Christina Romer, chair of the President’s Council of Economic Advisers, estimated that without stimulus programs “real GDP would have risen little, if at all, this past quarter.”

The GDP report notwithstanding, not all assessments of the economy for the third quarter are positive. According to the latest research from Alliance Trust, a Scottish Bank, “the overall financial situation facing U.S. households is still weak, and even recorded a renewed deterioration during Q3.” The assessment is significant because the bank has no “dog in the fight.”

“Economic activity remains very subdued,” offered the bank’s most recent analysis – distributed coincidentally the day after the GDP report was released. “Unemployment has increased further, and loan delinquencies continue to rise, all adding to the pressures currently facing households in the U.S. In addition, real disposable income levels have fallen, debt remains a burden and house price growth remains negative.”

The Alliance Trust report suggests as quickly as the stimulus added to reported growth, it could subtract without fundamental improvements -- leading us to the Friday jobs report.

We are repeatedly reminded -- or better, “experts” try to convince us -- employment is a lagging economic indicator. That may be only partly true. Yes, the Friday report will reflect actions by employers in response to changes in the economy: reducing staff and overhead to maintain profits (or in some cases just stay in business) and slowly rebuilding staff only after being convinced a recovery is real. Some of the Friday data will be leading, however. 

In his book “Ahead of the Curve,” subtitled “A Commonsense Guide to Forecasting Business and Market Cycles,” Joseph Ellis offered a straightforward view to understanding what drives the economy. In the “chronology” of the business cycle, Ellis wrote, the cycle begins with “real consumer spending” which flows from hourly earnings, a closely tracked component of the employment report. For consumer spending to increase, average hourly and weekly earnings would have to increase.

To be sure, average weekly earnings (a function of both hourly earnings and hours worked) have gone up, but the change in the last year has been 0.7%, about half the rate of increase in “core” inflation, or all items less the volatile food and energy components. (That increase was less than half of an alternate measure of inflation developed by the Cleveland Federal Reserve Bank – the trimmed mean inflation rate -- which excludes items with extreme price changes and showed an inflation rate of 1.6% in September.)

The upcoming week will offer more than just the FOMC and the jobs and unemployment report, covering a wide swath of the economy: manufacturing – with an updated report on auto sales -- the service sector, housing and consumer credit.

at its meeting in May 2005, the FOMC increased the target fed funds rate by one-quarter of a percentage point, to 3.0%, noting “the solid pace of spending growth has slowed somewhat, partly in response to the earlier increases in energy prices” but the labor market continued “to improve gradually” and while “pressures on inflation have picked up in recent months…longer-term inflation expectations remain well contained.”

That Friday, the BLS reported the economy added 274,000 jobs one month earlier (subsequently revised upward to 312,000) and the unemployment rate was unchanged at 5.2%.

Don’t look for numbers anywhere close to those this week.

Mark Lieberman is the senior economist for the Fox Business Network. Prior to joining FOX, he served as first vice president and manager of economic analysis and research at Washington Mutual in New York. Before that, he served as senior vice president at Dime Savings Bank of New York (which was later acquired by Washington Mutual), where he specialized in credit and risk management. He is a member of the Executive Committee of the New York Association for Business Economics. He has a degree in Economics from the Wharton School of the University of Pennsylvania.

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