It appeared that traders were prepared to accept the theory of a “jobless recovery” early in the session.
The Commerce Department said that GDP dropped only .7% in the second quarter compared to an initial figure of 1%. Optimists took that as a sign that the economy probably started growing in July. Shortly after that information was released, the Chicago PMI fell to 46.1% in September from 50% in August, offsetting some of the GDP news.
The other important piece of data released early today was from ADP which said that private-sector firms cut 254,000 jobs in September. The figure was worse than expected.
The GDP revision should have heartened traders and given them some reason to believe that second half economic growth could be nearly robust. But, the notion that a jobless recovery can be sustained is starting to fade.
Unemployment will almost certainly rise above 10% before the end of the year and stay above 9.5% through most of 2010. Congress will have to extend unemployment benefits several times to keep millions of people from becoming financial destitute. The number of people out of work and those who believe they could be out of work is weighing on anticipated holiday sales, which could put the retail industry back into the shape it was in at the end of 2008.
Government unemployment figures for September will be out in a week. If they are worse than expected the chances of a sustained economic recovery go down another notch and the stock market will probably go down with that.
Douglas A. McIntyre
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