Wall Street may be in for another rocky week, as traders brace for negative data topped by an expected rise in the US unemployment rate that could dampen economic recovery prospects.
All eyes will turn to the release of the monthly employment data on Friday, with most analysts forecasting non-farm payroll figures for this month to fall by 118,000 and unemployment to edge up to 9.6 percent from the current 9.5 percent rate.
“The most important number by far is going to be the job numbers on Friday. It is key to the entire economy and we haven’t had very good news lately about that,” analyst Nicholas Colas of ConvergEx Group said.
Unemployment remains the biggest concern of US President Barack Obama, who is facing an uphill battle to lift the fortunes of his Democratic Party in November’s mid-term elections.
On Wednesday, analysts expect to see the monthly Institute of Supply Management (ISM) manufacturing index decline to 53.3 percent from 55.5 percent, signaling a further slowdown in manufacturing, a key pillar of the US economy.
Wall Street shares ended the week on a positive note on Friday after Federal Reserve Chairman Ben Bernanke vowed to take aggressive steps to boost the US economy if its outlook worsened.
“Bernanke was the big mover of the market, coming out and saying, ‘we’re ready to help the economy’ if needed, but he was a bit more optimistic about the outlook for the economy, boosting stocks,” FTN Financial analyst Lindsey Piegza said.
For the week, however, the Dow Jones Industrial Average lost 0.62 percent to 10,150.65 and the broader S&P 500 index dropped 0.66 percent to 1,064.59 as both indices extended a third consecutive week of losses.
The technology-rich NASDAQ composite index slumped 1.2 percent to 2,153.63 despite a growing bidding war between computer-maker giants Hewlett-Packard and Dell to buy data storage firm 3PAR.
The Fed chief also said that prospects for US growth to pick up next year appeared to remain despite the government revising downward its GDP estimate for the April-June period, saying GDP grew at 1.6 percent, less than half the first quarter’s 3.7 percent growth.
The growth plunge was on the back of a massive trade deficit and weak private inventory investment, signaling a more pronounced slowdown in recovery from recession.
Most recent economic data fell below already modest expectations and economists are reducing their growth forecast for the third quarter with some warning of a “double-dip” recession, when GDP contracts after a quarter or two of positive growth.
New home sales plunged this week to their lowest levels in half a century and the pace of orders for goods indicated the manufacturing sector slowed markedly, with business capital spending contracting massively.
Thursday’s report showing a drop in the number of Americans filing for new jobless benefits claims failed to impress traders.
“The market is very uncertain about the trajectory of the economy going into the last half of the year. The data early in the week was very unsettling as far as hoping for further growth,” Colas said.
Despite next week’s expected negative data, analysts do not predict a sharp drop in stock prices, even as Wall Street enters what is traditionally seen as a difficult month for shares.
“The bar is set pretty low given that the data has been weakening for sometime now ... It would take some pretty significant disappointment to drive us lower,” Economy.com analyst Aaron Smith said.