Next test of this glass-is-half-full rally comes with Friday's jobs numbers

08/29/2011 5:40 pm EST


Jim Jubak

Founder and Editor,

This week has started off as last week ended—with investors willing to see the economic glass as half full.

Last Friday U.S. stocks rallied, after initially sinking, after Federal Reserve chairman Ben Bernanke said the U.S. economy is strong enough that the Fed doesn’t need to launch a third round of quantitative easing now. Investors apparently decided it was good news if the Fed thought it didn’t have to intervene to prop up growth.

The Dow Jones Industrial Average climbed 4.3% for the week.

Today U.S. stocks were higher again on an 0.8% increase in personal spending in July. The advance in July was the strongest gain n spending since February and a huge swing from the 0.1% drop in June. Economists surveyed by had expected a 0.5% increase in consumer spending.

In its current glass-is-half-full mode the financial markets were willing to look past the problems represented by a 0.3% increase in personal income in July. Although that was better than the 0.2% increase in personal income in June, it still lagged the growth in personal spending. Consumers in July increased their spending faster than personal income grew. The increase in spending over the growth rate in personal income resulted in the savings rate declining to 5.0% in July from 5.5% in June.

This data increases the likelihood that the next big test of the Half-empty/half-full view will come on Friday with the monthly payroll and employment numbers. Economists are looking for the economy to add a meager 75,000 jobs in August. That would be down from 117,000 jobs in July, itself a disappointingly low figure.

Do remember, however, that in the topsy-turvy world of investing, that 75,000 number becomes a very low bar for the economy to jump. Anything above it could be considered a positive surprise—if the market was disposed to see the glass as half full.


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