Just two days after the second quarter gross domestic product report excited analysts and investors, the new jobs report released Friday (October 2nd) has softened hopes that all is rosy on the economic front.

Most analysts and top economists have been saying for months that the labor market would probably be the potential stalwart as the economic recover commences. Some analysts still expect unemployment could be on the rise and that it could reach over ten per cent by early-to-mid 2010.

Friday’s non-farm payroll report showed that employers cut 263,000 new jobs, which was well over the 180,000 that had been forecasted in the Reuters survey of analysts. Unemployment climbed from 9.7 per cent during August to 9.8 per cent in September.

Despite the poll, many are not overly shocked by the higher than expected job cuts. Analysts were surveyed prior to Thursday’s manufacturing report that showed much worse than expected manufacturing production, signaling that company’s were still holding out on business expansion.

Friday’s payroll report marked the 21st consecutive monthly drop in jobs and showed the highest unemployment level since June 1983. The news is especially disappointing because Wednesday’s GDP report showed a .7 per cent annualized loss in the second quarter, compared to a 6.4 per cent drop in the first quarter. Still, most economists believe the economy grew (perhaps as much as 3 per cent) in the third quarter, which ended September 30.

Not surprisingly after the manufacturing report, that sector showed a deep cut of around 51,000 jobs for September. Construction jobs were similarly slashed. Other market sectors that showed deep cuts were the service-providing businesses and goods producers.

This segregated look at the data reinforces the notion that companies aren’t diving back in full force even with the optimistic view for the broader economy. Some are still forced to deal with the reality of a tougher credit environment and restricted cash flow.

Education and health was a stronger performer. Many healthcare providers have ramped up out of necessity given the heightened cold and flu season and the rampant spreading of the H1N1 virus.

Even with the dismal showing in Friday’s report, some analysts believe the dose of reality may be good for investors considering throwing money back into stocks and other growth investments without considering the risks. A cautious and sound rebuilding of the economic infrastructure is what will help keep the economy running well going forward.

Neil Kokemuller
9:05 AM EST
Friday, October 2, 2009

Neil Kokemuller is an Associate Professor of Marketing at Des Moines Area Community College in Des Moines, Iowa, USA. He has a MBA from Iowa State University. He is also in house stock market commentator at Live Charts UK, where you can find real time charts and share prices.

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