NEW YORK, 7 September 2003 — Fresh signs of an economic acceleration helped Wall Street shares post gains over the past week, despite concerns that the recovery may be tripped up by a weak labor market. The Dow Jones industrials rose 0.93 percent in the week to Friday to 9,503.34 after climbing to a 15-month high on Thursday.
The NASDAQ, which moved off a 17-month high, gained 2.53 percent for the week 1,858.24, and the Standard and Poor’s 500 dropped advanced 1.33 percent to 1,021.39 after an eight-day string of gains ended Friday.
The blue-chip Dow index rose for a fifth straight week while the NASDAQ and S and P gained for four consecutive week. The strong gains early in the week were fueled by a series of upbeat economic indicators, showing surging productivity, improving factory orders and a rapidly expanding service economy.
But the market turned sour on Friday when the government reported a loss of 93,000 jobs in August, dashing hopes for an end to the so-called jobless recovery.
A Labor Department report showing 93,000 jobs lost in August provided the catalyst for the sell-off after the major indexes had climbed to fresh 2003 highs on Thursday. Analysts said the data confirmed the “jobless recovery” for the US economy that could eventually fade if consumers start to retrench.
“Today’s employment report put a damper of sorts on an otherwise impressive string of reports this week,” said Robert DiClemente at Smith Barney. James Park, senior trader at Brean Murray
and Co., said stocks got hit by a dose of reality and called the pullback healthy. “I feel the market had gotten a bit ahead of itself, it’s extended,” he said.
“The economy is picking up, but firms are remaining cautious. There’s certainly a dark side to the productivity miracle,” said Cary Leahey, senior economist at Deutsche Bank.
“The third quarter is shaping up to be another quarter of strong growth, all generated by productivity gains rather than hiring,” said CIBC World Markets economist Avery Shenfeld.
Some economists are concerned that without hiring, consumer spending will falter, and along with it the economic recovery.
“Today’s jobless recovery is the dark side of strong productivity growth,” said Morgan Stanley’s Richard Berner, who says the economy cannot continue on this trend without crimping the economic recovery.
“The combination of a jobless recovery and strong productivity growth is unsustainable,” he said.
“Prolonged employment stagnation would imperil the recovery as consumers likely would become more cautious ... and without self-sustaining recovery that promotes top- and bottom-line growth and the nascent revival in capital spending, productivity gains would ultimately wither.”
Yet many economists have boosted their growth forecasts for the current quarter to the five to six percent range, a pace that could help encourage job growth as well. “I believe that a moderate employment recovery is on the way,” Berner said. “That’s largely because ... cyclical barriers are already fading with the passage of time, and stronger growth will largely eliminate them.”
Among active shares in the past week, retail giant Home Depot gained 4.42 percent for the week to 34.24 amid positive broker comments. Cisco Systems, which offered a surprisingly upbeat outlook for sales, jumped 6.74 percent to 20.43.
Another tech bellwether, Intel edged up 0.42 percent to 28.71 as it increased its sales outlook. Telecom equipment maker Nortel Networks, meanwhile, jumped 26.5 percent to 4,10 after winning a multiyear contract for wireless gear from Verizon Wireless.
In the airline sector, AMR advanced 14 percent for the week 12.90 after broker comments that the parent of American Airlines will show strong growth.
Bonds rebounded from their recent drubbing as weak job statistics and comments from Federal Reserve officials reassured investors that interest rates would remain low.
The yield on the 10-year US Treasury bond dropped to 4.354 percent from 4.454 percent a week earlier, while the yield on the 30-year bond fell to 5.207 percent from 5.224 percent. Bond yields and prices move in opposite directions.
