Mid-Day Recap: Post-Employment Report Stock Sell-Off is Modest

This morning’s employment report was called “terrible,” “dreary,” “bleak,” and “painful,” but halfway through the session equity markets are only modestly lower. It appears that yesterday’s 2.6% setback in the S&P 500 was deep enough to satisfy investors who believe the stock market had overheated.

As of 12:30, the S&P is down 0.23% to 1,027, the Dow is trading 0.11% lower at 9,498, and the NASDAQ is down 0.12% to 2,055.

Data Recap:

The Bureau of Labor Statistics said 263,000 jobs vanished in September, almost one-hundred thousand worse than the market forecast. New job cuts pushed the unemployment rate up one-tenth to a fresh 26-year high at 9.8%. 

A double-digit unemployment rate is expected before 2010. The most recent jobless claims report said around 550,000 Americans are filing for first-time benefits each week, and signs of job hirings are few. Indeed, today’s report said more than one-third (35.6%) of the unemployed have been jobless for 27 weeks or more.

“There was nothing to support the view that the economy will be adding jobs before the end of the year,” said Brian Bethune from IHS Global Insight. “And nothing to support the view that the consumer can sustain the spending increases that we saw in August – employment and hours worked were down, and hourly earnings only inched higher, implying that wage and salary incomes fell.”

Since the recession hit the economy in December 2007, the number of unemployed persons has increased by 7.6 million to 15.1 million, and the unemployment rate has doubled. Moreover, the all-in unemployment rate ― basic rate + discouraged workers + involuntary part-timers ―  rose two-tenths to a record 17%.

The only other data released this morning was Factory Orders, which also failed to provide hope for a rapid recovery in the final quarter of this year.

Against estimates that orders would see a 1.0% gain in August, the reality was a 0.8% drawback. That follows a 1.4% rise in July and a 0.9% gain in June. 

Factory orders were hampered by a 2.6% decline in durable goods, while orders for non-durable goods eked out a 0.8% increase.

“A recovery is not yet assured and that the risks of a second downdraft in growth ― the dreaded W ― have gone up,” said analysts from Nomura Global Economics. 

Aside from data, markets also heard from Eric Rosengren, president of the Boston Federal Reserve. The bond market was pleased to hear Rosengren say that despite the influx of liquidity from the Fed, inflation wouldn’t be a problem going forward. However, he also cautioned that financial markets were too optimistic in assessing the prospects for growth.

 "The economic recovery remains fragile and quite capable of falling short of the more positive expectations and degrees of confidence now reflected in financial markets," he told the Greater Boston Chamber Financial Services Forum.