Monday Market Update

After a number as bad as this jobs report was Friday, the fact the stock market completely ignored it as a non-event really drives home the fact that investors have bitten off on the idea, hook line and sinker, that we are about to see an economic recovery in the second half of the year.

It is not that I wouldn’t like to see that, but frankly, there was little in Friday’s report that suggests this rapid contraction is about to end soon.

In fact, the unemployment number fell by an even larger amount than the previous month, 663,000 jobs. The monthly unemployment rate for February rose to 8.5% — up from 8.1% in the previous month.

The economy has lost over 2 million jobs in 2009 alone and 5.1 million jobs since the recession began. At the current rate it means we potentially could lose another 3.6 million jobs in the next six months at this pace.

However, the stock market is considered to be a leading indicator and the unemployment a lagging indicator. The market now has the notion that we are seeing the worst of the numbers now and that we should see an economic trough if not last quarter, then this quarter.

Here is another more cynical opinion. Let’s drive up stock prices ahead of April 15th income tax due as far as we can get it, to give people more money to pay their income taxes. We need all we can collect here, especially this year.

I suspect both dynamics are at play here.

After April 15th, the realities of the first quarter corporate earnings are going to hit hard though. The stock market may have ignored the unemployment figures today but you should not underestimate what this jobs report will mean to earnings in this and next quarter. Intensifying job losses, lower work hours and slower wage growth will put further pressure on consumer spending, raise mortgage, credit card and other debt defaults.

What the unemployment report showed is lay-offs are spreading. It began in the housing and financial sector and now it is spreading to the corporate sectors in transportation, telecom, retail, home stores, infrastructure, exporters and many other sectors as people continue to curtail consumption.

While it is true that many companies are becoming lean and mean by reducing their overhead having fewer mouths to feed, the other side of the equation is less of a demand for goods and services, which weakens corporate profits further and can force even more lay-offs. The more intense job losses become and the longer we continue to see the unemployment rate soar the slower the economy will “really” turn around.

While the excitement over the fiscal stimulus plan includes unemployment insurance which will help to alleviate the impact of job cuts, it still doesn’t prevent more lay-offs or improve hiring in 2009.

I remember the recession of 1982. Unemployment rose to 10.8% in that business cycle peak and this recession is far worst than 1982 in terms of intensity.

The fact is many businesses are still finding it extremely difficult to access credit, especially small businesses.