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Old 01-03-2008, 09:24 AM
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Default Employment Data Help Allay Recession Fears, for Now

Employment Data Help Allay Recession Fears, for Now
Last Update: 03-Jan-08 08:51 ET

The market is facing a struggle dealing with recession fears. Every weak economic report, whether truly indicating recession or not, gets lumped in with the "R" word.

The economic outlook is clearly poor, but that doesn't necessarily mean a true recession--with overall GDP declining for at least a full quarter or two. Nevertheless, every sign of sluggish growth is accompanied by screams of recession, as if to highlight the economic weakness without specifically quantifying it.

It may well be that real GDP will grow at a meager 1% annual rate in the first and second quarter, and that many will claim that a recession occurred. That is what happened in early 2003. Real GDP was rising, but some economists claimed it was actually a recession because certain sectors were very weak.

In any case, the economic data will certainly stay weak for a while. That will give ample opportunity to journalists to keep promoting the "R" word, and keep the stock market fears fully fueled.

The economic data today does not suggest recession. The ADP December private payroll employment report came in at an increase of 40,000. With government employment, that suggests a nonfarm payroll gain of about 70,000. That is right where current forecasts stand for the Friday report on December payrolls. Such an increase would still be a long way from recession. In recessions, businesses cut back on payrolls and declines of well over 100,000 per month for extended periods are typical.

Unemployment claims for the week ended Dec. 29 fell to 336,000 from 357,000 the week before. This is also good news on the employment front. Claims had risen to near 350,000 the prior two weeks and raised concern of an uptrend. This is just one week of data from a holiday period, but the lower level is welcome. Claims remain a long way from signaling significant layoffs by businesses.

The two employment-related reports have helped stock futures bounce this morning. An up open is indicated. We continue to believe the market's worst fears are overdone, but as we discussed in yesterday's Big Picture column, the market outlook for 2008 is not inspiring.

Oil is pushing $100 a barrel today, so if the market ends up lower, journalists can use that in their headline instead of the "R" word.

-- Dick Green,
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