Weak Jobs Report, More Credit Woes Sends Stocks Skidding

By Jason Simpkins

U.S. stocks tumbled Friday – the Dow Jones Industrial Average recorded its third-worst day of the year – after an unexpected increase in the nation’s jobless rate and new revelations about the growing U.S. credit-market mess seemed to fuel concerns about the health of the country’s economy.

The Dow plunged more than 281 points, or 2.1%, to close at 13,181.91. All 30 stocks in the index declined for the day and the Dow shed 0.7% for the week – despite having gained a total of 250 points over the course of Wednesday and Thursday.

The broader Standard & Poor’s 500 Index skidded 2.7% Friday and was down 1.8% for the week. The technology-laden Nasdaq composite index careened downward 2.5% in trading Friday, capping off a week in which it lost 1.9%.

The Labor Department said that unemployment reached a six-month high of 4.6% in July, a slight increase from 4.5% in June, but the highest level since the first month of the year. While still low by historical standards – economists once thought that anything below 5% represented “full employment” and would be tough to achieve – the increase may well mean that the economy is weaker than expected.

For months, the economy has been carrying the burden of near-record-high oil prices, coupled with a weak U.S. dollar and an even-weaker housing market. An uptick in unemployment is yet another indicator that economic growth is slowing down.

Economists expected employers to add approximately 135,000 jobs in July, and believed the unemployment rate would remain unchanged from the month before. And while the jobless rate moved up 0.1%, it was the super-weak job growth numbers that stunned analysts: Employers added only 92,000 more jobs last month, the worst showing since February.

New figures also show that job growth in previous months was far more modest than first thought. It’s now estimated that the economy took on just 126,000 jobs in June, fewer than the 132,000 originally reported.

Construction companies, whose struggles have been painfully evident, cut 12,000 jobs in July. The manufacturing and retail sectors cut a total 3,000 jobs. Approximately 28,000 government jobs were eliminated, the first decline in government employment in more than a year.

Jobs were added on in the fields of education and healthcare, which brought in 39,000 new employees.  Business and professional services added 26,000 workers, and leisure and hospitality industries brought on 22,000. 

Meanwhile on Friday, new developments related to the publicized collapse of two Bear-Stearns Cos. hedge funds deepened credit-market fears. With shares already headed lower, a company conference call about the impact of defaulting home loans on its funds apparently failed to reassure investors, and the pace of the sell-off quickened, according to a MarketWatch report. That’s no surprise, given that Bear Stearns Chief Financial Officer Sam Molinaro told analysts on the conference call that the bond market is the worst he’s seen in 22 years.

Bear Sterns tried to put its “best face on the situation, but the market wasn’t convinced,” Cowen & Co. Trading Analyst Mike Malone told the financial news service.

Bear Stearns (NYSE: BSC) took it on the chin, with its shares dropping early 6% to close at $108.99 by the end of trading on Friday.

Treasury prices climbed as investors clamored for a safe haven, and the yield on the 10-year bond dropped from 4.77% to 4.69%.