There’s no other way to spin it.
The Labor Dept.’s weekly report on jobless claims showed that the unemployment rate has reached the highest level since 1992.
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Payrolls tumbled in January by 598,000, the biggest monthly decline since December 1974.
Although the stock market appears to holding in a relatively tight range, the U.S. jobless rate rose to 7.6 percent from 7.2 percent in December.
Jobless rates in select areas, like Rhode Island, the Northwest, or Southern California, are already hitting double digits. The unemployment rate in Michigan is 10.6 percent. To date, payrolls have plunged by 3.57 million.
Where Is the Bottom?
Job losses at employers ranging from manufacturers like Caterpillar Inc. to retailers such as Macy’s Inc., are shattering consumer confidence and crippling spending. According to figures released by the Commerce Dept., household purchases fell at an annual rate of more than 3 percent during the past two quarters.
Last month, for the first time since 1939, job cuts have exceeded a half million in consecutive months.
Based on the numbers, the economy looks to be in a freefall with no bottom in sight. The Dow, however, opened above 8200 points, marking the second day in two that it has rallied. This morning, the S&P 500 rose 1.5 percent to 858.13.
Bank of America Corp., Citigroup Inc. and JPMorgan Chase & Co. rallied at least 7 percent to lead gains in the Dow Jones Industrial Average. Nine of the 10 industry groups in the Standard & Poor’s 500 Index also advanced.
They Are Counting on a Stimulus Victory
The best explanation for this speculative rally on the stock market is that investors are anticipating the completion of the President’s stimulus package. At this point, if the recovery legislation stalls on Capitol Hill, the market correction could be swift and violent.
Despite the stronger numbers coming out of Wall Street over the past few days, most analysts are projecting that dividends paid out by companies listed on Standard & Poor’s 500 Index will likely fall by about 13 percent this year, the steepest annual decline since 1942. In a press statement posted by today by S&P, it forecast that companies in the 500-stock index are on pace to make $214.7 billion in payouts in 2009, compared with $247.9 billion in 2008.
After pushing above $44 per barrel, the unemployment numbers along with anticipated reduced demand have pushed crude prices to a two-week low at $39.43. This has resulted in about a 4 cent drop in wholesale gasoline prices.
Higher Prices
Surprisingly, not all commodity prices have contracted. Soybeans and corn are up for the fourth day in five, largely as a result of projected drought conditions and lower yields in Latin America. Wheat has moved higher after China said that its harvest had been hit by a lack of rain.
Gold has moved over $900 an ounce and silver has crested above $13. Copper and aluminum rose in London, resuming this week’s climb, on speculation government spending in China will speed growth and revive demand.
In the meantime, investors are holding their breath. Hopefully, the President and Congress don’t keep us waiting too long.
John Cohn is a senior partner in the Globe West Financial Group[ based in West Los Angeles. He may be contacted at www.globewestfinancial.com
