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Investors Grow Weary as Job Losses Mount

Published 09/08/08 Dustin Ensinger - Print Article
E-mail - editor@economyincisis.org

Investors are growing wearier of U.S. stocks as each passing day brings about more bad news for the economy. The Labor Dept.’s recent unemployment report released Friday showed unemployment rising to 6.1 percent, the highest level since 2003. In a waning economy, any bad news is causing alarm for investors.

The unemployment figure is certainly disconcerting, but the pace at which it is accelerating may indicate increasing harm. In February, the unemployment rate was just 4.8 percent. The 1.3 percent increase from February to August points to a trend that is likely to continue into the foreseeable future.

The report seemed to lessen any optimism that was falsely created by recent news of the U.S. GDP registering a 3.3 percent increase in the second quarter.

"Investors have been teased by data over the last month or two that was suggesting we would skip a recession entirely," says Chris Johnson of Johnson Research Group. "There was some hope out there."

Unfortunately, that hope has been dashed. Now many analysts are warning of more trouble ahead. The weak labor market is likely to have a huge negative impact on consumer spending, which in turn will contribute to a lengthy period of job losses. The weak labor market is also likely to continue to raise concerns over consumers’ abilities to pay mortgages and other debts, exacerbating the credit crisis.

Consumer stocks are sure to be affected. Even employed workers cut back their spending at retailers and restaurants due to mounting concern over the safety of their jobs. The pullback in consumer spending is having a cyclical effect - as consumers cut back, businesses are forced to cut back.

The rapid increase has also raised concerns in the already battered financial sector of the economy. The rising unemployment rate elevates concerns over consumers’ capacities to pay back debts leaving them much less likely to purchase new homes.

Source Business Week:

After an initial decline, U.S. stocks seemed to shrug off the bad news by posting modest gains on Sept. 5. Nonetheless, there are plenty of reasons a weakening labor market should alarm investors.

For one thing, it's just more bad news for a stock market that already has had its fill. "It's the psychological effect of bad news," says Quincy Krosby, chief investment strategist for the Hartford.

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