Layoffs undermine consumers' ability to ignite economy

NEW YORK -- The stock market's next move — either up or down — is dependent on economic data. And no data point is as important as jobs.

Readings on retail sales, home prices, factory orders, consumer confidence and purchases of big-ticket items such as cars and ovens simply must get better.

But there's a catch: For those key measures of business health to exhibit signs of a real recovery, companies have to stop laying off a half-million people every month and start hiring. In an economy in which consumers account for roughly 70% of the demand for goods and services, their ability to earn a paycheck is key to a lasting recovery.

Increasingly, the fate of stocks may be tied to jobs.

"The job market will be driving the stock market in the near future," says Sung Won Sohn, a professor at California State University, Channel Islands. "We can look at a slew of stats, but at the end of the day none is more important than jobs. Without jobs you cannot have a meaningful economic recovery."

And the latest snapshot of the employment picture does little to suggest a hiring boom is on the horizon. The Labor Department last week reported that employers axed 467,000 jobs in June — 100,000 more than expected and nearly 150,000 more than in May. The unemployment rate hit 9.5%, its highest level in 26 years.

The weak job numbers mean renewed angst for investors who have pushed stocks up sharply since March 9 amid hopes the economy would rebound in the second half of 2009.

There is a fear that a jobless recovery will ensue, pinching the pocketbooks of millions of Americans and snuffing out any chances of a quick economic rebound or profit recovery for U.S. businesses. Fear of such a scenario pushed the Dow Jones industrials down 223 points Thursday to 8281 (the market was closed Friday).

"For any economy, the most important thing is income in the form of wages, and having a job or not having a job is the biggest impact on spending," says Charles Biderman, CEO of TrimTabs. "You can't get more basic than that." Since the recession began in December 2007, 6.5 million jobs have been lost. It's difficult for consumers to lead a recovery if they are jobless or fear losing their jobs, Biderman says.