June 8th, 2011 10:37 AM by Mel Samick
Evidence is piling up that the economic recovery has lost some of its vigor and that has pushed indexes down for five straight weeks, the longest losing streak since mid-2008. With high gas prices crimping consumer spending and companies still reluctant to hire, investors may have to settle for a stock market and an economic recovery that plod slowly along. A weak employment report spurred another stock sell-off Friday; two days after the Dow Jones industrial average had its worst drop in nearly a year. The Dow closed at 12,151. The Standard & Poor's 500 index fell to 1,300. The Nasdaq composite fell to 2,732. Each index lost 2.3 percent for the week. The sentiment seems to have moved from caution to an uneasy nervousness. So, what's next? Don't hold out hope for more help from the government. Another round of stimulus spending isn't in the cards; the Fed has already slashed interest rates near zero and has said it will end its bond-buying program on schedule at the end of this month. Employers added only 54,000 new workers in May, the fewest in eight months and well below what analysts were expecting, the Labor Department reported. Private companies hired the fewest new workers in nearly a year. The unemployment rate inched up to 9.1 percent from 9 percent. Despite the market's recent slump, analysts say there are still plenty of bright spots in the economy including business spending and bank lending.
In other bad news, housing is the one part of the economy that has been persistently underperforming due to the glut of houses for sale and related weak demand. The U.S. Government is already using taxpayer funds from its $700 billion bank bailout program to help prevent foreclosures and give struggling Americans a reprieve on their mortgage payments. But the programs have had little impact on the overall housing sector. March home prices slumped below lows reached during the financial crisis in April 2009. The White House has little leeway to increase government spending to help spur the housing market and keep the economic recovery advancing. Political appetite for further government stimulus measures is low as lawmakers from both parties focus on deficit reduction.
European officials said Greece would receive the next installment of its emergency loan package, lifting some uncertainty about Greece's fiscal crisis. European stocks and the euro rose after the European Union, European Central Bank and the International Monetary Fund gave Greece more breathing room as it tries to service its debts. So far, Athens has received 43 billion euros under the first bailout, although it urgently needs another 12 billion which had been due in late June to cover debt repayments and for its day-to-day running costs. Greece's prime minister is to meet with ministers today as he tries to get new austerity plans through Parliament despite increasing dissent within his own party and big demonstrations. In economics, austerity is a policy of deficit-cutting, lower spending, and a reduction in the amount of benefits and public services provided. Tens of thousands of protesters have gathered in downtown Athens to protest outside parliament against the government's austerity policies and demand that the heavily indebted country stop paying its creditors. I almost choked on a kalamata olive when I read that. On a side note, "austerity" was named the word of the year by Merriam-Webster in 2010.
Information provided by NYCB Capital Markets