September 30, 2022

Markets Tumble After U.S. Labor Data

In morning trading, the Standard Poor’s 500-stock index dropped 29.67 points, or 2.35 percent. The Dow Jones industrial average lost 243.44, or 2.05 percent, to 11,653.00, and the Nasdaq index slid 70.24 points, or 2.61 percent.

New claims for unemployment benefits in the United States edged down last week, pointing to a marginal improvement in the labor market, the Labor Department said.

“Essentially, claims have stalled and the growth of employment has stalled, which is very consistent with what we know to be the case for the economy,” said Hugh Johnson, chief investment officer of Hugh Johnson Advisors LLC in Albany, N.Y.

“Everything, the claims numbers included, says the same thing — the economy has stopped.”

The S.P. 500 index rose on Wednesday after seven straight losing sessions, but worries about the economy kept investors jittery and trading volatile with Friday’s key unemployment report looming.

Further weighing on futures were comments from European Central Bank President Jean-Claude Trichet that “downside risks may have intensified.”

Retailers will be in focus as chain stores reported healthy July sales increases. Deep discounts and the warmest weather in decades brought shoppers to malls.

But the clothes retailer Aeropostale slid 10.4 percent after it forecast second-quarter revenue below estimates.

General Motors edged up 0.04 percent to $27.18 after it reported quarterly profit nearly doubled.

Kraft Foods jumped 5.7 percent to $36.25 after it disclosed plans to split into two listed companies: global snacks and North American groceries. It also posted better-than-expected quarterly results.

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Economy Faces a Jolt as Benefit Checks Run Out

Close to $2 of every $10 that went into Americans’ wallets last year were payments like jobless benefits, food stamps, Social Security and disability, according to an analysis by Moody’s Analytics. In states hit hard by the downturn, like Arizona, Florida, Michigan and Ohio, residents derived even more of their income from the government.

By the end of this year, however, many of those dollars are going to disappear, with the expiration of extended benefits intended to help people cope with the lingering effects of the recession. Moody’s Analytics estimates $37 billion will be drained from the nation’s pocketbooks this year.

In terms of economic impact, that is slightly less than the spending cuts Congress enacted to keep the government financed through September, averting a shutdown.

Unless hiring picks up sharply to compensate, economists fear that the lost income will further crimp consumer spending and act as a drag on a recovery that is still quite fragile. Among the other supports that are slipping away are federal aid to the states, the Federal Reserve’s program to pump money into the economy and the payroll tax cut, scheduled to expire at the end of the year.

“If we don’t get more job growth and gains in wages and salaries, then consumers just aren’t going to have the firepower to spend, and the economy is going to weaken,” said Mark Zandi, chief economist of Moody’s Analytics, a macroeconomic consulting firm.

Job growth has remained elusive. There are 4.6 unemployed workers for every opening, according to the Labor Department, and Friday’s unemployment report showed that employers added an anemic 18,000 jobs in June.

In Arizona, where there are 10 job seekers for every opening, 45,000 people could lose benefits by the end of the year, according to estimates from the state Department of Economic Security. Yet employers in the state have added just 4,000 jobs over the last 12 months.

Some other states will also feel a disproportionate loss of income unless hiring revives. In Florida, where nearly 476,000 people are collecting unemployment benefits, employers have added only 11,200 jobs in the last year. In Michigan, employers have added about 40,000 jobs since May 2010, but about 267,000 people are claiming jobless benefits.

Throughout the recession and its aftermath, government benefits have helped keep money in people’s wallets and, in turn, circulating among businesses. Total government payments rose to $2.3 trillion in 2010, from $1.7 trillion in 2007, an increase of about 35 percent.

While some of that growth was in Social Security and disability benefits as the population aged, the majority resulted from payments to people continuing to suffer from the recession, said Mr. Zandi. Unemployment benefits, including emergency and extended benefits, are more than three times their prerecession level, he said. The nearly 20 percent of personal income now provided by the government is close to a record high.

Approved by Congress last December, the final extension of jobless benefits — for a maximum of 99 weeks for each unemployed person — is scheduled to conclude at the end of this year. A handful of states, like Wisconsin and Arizona, have already cut off weeks 80 through 99 for their residents. Meanwhile, more of the long-term unemployed are bumping up against the 99-week limit.

Consumers account for an estimated 60 to 70 percent of the country’s economic activity, but two years into the official recovery, businesses are still complaining that people simply are not spending enough.

“Regardless of why people have less money to spend, it affects all retailers in all industries,” said Michael Siemienas, spokesman for SuperValu, which operates grocery chains including Cub Foods, Shop ’n Save and Save-A-Lot. Mr. Siemienas said that the number of SuperValu’s customers using electronic benefit transfers to pay bills had grown over the last year.

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