Investors brace for jobs report – Omaha World-Herald
Thursday was tough for traders at the New York Stock Exchange, as the Dow Jones Industrial Average plunged nearly 513 points.
THE ASSOCIATED PRESS
Published Friday August 5, 2011
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WASHINGTON — After a spate of bad economic news and a 10-day pounding of stock prices, Friday’s jobs report is likely to play an outsized role either in calming the waters or deepening fears that the U.S. economy is sliding back toward recession.
Stocks plummeted Thursday as investors fretted about weakening economic conditions and emergency steps announced by the European Central Bank that only heightened worries that big economies, led by Italy and Spain, are in deep trouble.
The Dow Jones Industrial Average finished the day down 512.76 to close at 11,383.68. The S&P 500 fared no better, off 60.27 points to close at 1,200.07. The tech-heavy Nasdaq fell 136.68 points to end at 2,556.39.
Thursday’s plunge followed a breather Wednesday that broke an eight-day slide, the worst since October 2008.
The financial markets’ volatility heightens attention to Friday’s Labor Department monthly report on jobs, which has been dismal for two consecutive months. Perhaps surprisingly in light of the recent run of bad economic news, there are reasons to think the July jobs report may reverse the skid, with most forecasters projecting growth in the range of 90,000 to 120,000 new jobs.
Wednesday’s ADP National Employment Report, which gauges private payrolls, estimated that 114,000 private-sector jobs were created in July. The ADP report at times has been a good gauge for the government report that comes two days later, but at other times it has misfired wildly.
If roughly 100,000 jobs were added in July, that wouldn’t be enough to knock down the unemployment rate, a painful 9.2 percent in June. But after only 18,000 new jobs were reported in June and a subpar 54,000 in May — later revised down to just 25,000 — a triple-digit monthly gain would look and feel like an improvement.
By most accounts, the economy is at a turning point: It could slide into recession, or it could reaccelerate.
On Tuesday the Commerce Department reported that wages and income were flat, and consumption was down for the first time in two years. That followed a glum report last Friday that second-quarter growth in the United States was up by only a sluggish 1.3 percent, and first-quarter growth was revised down to just 0.4 percent.
Thursday brought another troubling sign when the RBC Consumer Outlook Index showed consumer confidence slumping for the second straight month.
It all has many economists worried about a double-dip recession.
“Are we in a recession, again?” asked the title of a research note Thursday by economists at Bank of America Merrill Lynch in New York.
“As the economic data continue to disappoint, we become more worried about the strength of the recovery. We took a sledgehammer to our forecasts last week, and now look for below-potential growth through the end of next year,” Michelle Meyer and her fellow economists wrote.
“A lower growth trajectory brings greater risk of dipping into recession. We now believe there is a 35 percent chance of recession in the next year, about double where we put the odds this spring.”
The U.S. economy this year already has weathered a sharp spike in oil prices, supply-chain woes caused by Japan’s devastating earthquake, European financial turmoil and a self-inflicted wound to confidence from Washington’s threat of a default on the national debt.
All this led Meyer to warn that “the economy is one shock away from falling into recession.”
So what to do?
The debt-ceiling deal painfully reached by Congress and the White House ensures that there won’t be new federal spending to boost the economy. State and local governments continue to shed jobs. President Obama is touting passage of trade deals with Colombia, Panama and South Korea as a potential spark, along with another year of waiving payroll taxes.
“If it looks like we’re going back into a recession or the deflation threat revives, then I think the tenor and the nature of the debate will change quite rapidly,” said Mark Zandi, chief economist at Moody’s Analytics. Zandi put the chances of a double-dip recession at 25 percent, but “rising each day as confidence fades.”
Congress could move to extend the one-year payroll tax cut, set to expire in December, and extend unemployment benefits, Zandi said. But those moves simply would maintain the status quo, not provide any additional stimulus.
The talk on trading floors in New York was whether, after nearly two weeks of sinking share prices, the Federal Reserve would launch another economic stimulus program — and whether that would be enough to quell investors’ nerves.
“Everyone is looking at big Ben Bernanke and whether he pulls out some special tools like he did last summer to help get this market rallying,” said Michael Purves, chief market strategist with BCG Financial.
Just three weeks ago, the Fed chairman told lawmakers that the central bank was prepared to act if the economic situation worsened significantly.
But he said the Fed still projected that the economy would strengthen in the second half of the year, adding, “We’re not prepared at this point to take further action.”
The landscape has changed dramatically since then, said former Fed official Vincent Reinhart. Chances have shot up that the central bank will launch a third bond-buying program to stimulate the economy — unlikely just a few days ago because of divisions on the Fed policymaking board, he said.
“There’s a whiff of panic in the air. And in panic, power concentrates in the chairman,” said Reinhart, a resident scholar at the American Enterprise Institute. “Chairman Bernanke’s probably more inclined to do it than some of his colleagues.”
But with Treasury bond yields diving in recent days to their lowest levels since last fall, some analysts see no point in the Fed launching a third purchase program. And banks complained that many creditworthy businesses and consumers have no appetite for more borrowing.
The Fed, which meets Tuesday, has some smaller moves it also could make to ease the crisis, including promising to keep short-term interest rates near zero perhaps for years, analysts said.
This report includes material from the Los Angeles Times.
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