The Dow's Big Day Rounds Out Big Week In Business News

The stock market surged Friday after a week of conflicting economic signals. New data showed the economy shrank in the final quarter of last year, but employers kept hiring at a faster pace than initially reported.

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SCOTT SIMON, HOST:

This is WEEKEND EDITION, from NPR News. I'm Scott Simon. And the U.S. stock market's on a tear. The Dow Jones Industrial Average closed above 14,000 yesterday, for the first time in more than five years. Investors seized on encouraging news about factory orders and auto sales. They chose to look past a report that unemployment inched up last month, too, to 7.9 percent. NPR's Scott Horsley reports.

SCOTT HORSLEY, BYLINE: It was a week of mixed signals from Washington and Wall Street. But investors seemed determined to look on the bright side. The Dow soared nearly 150 points on Friday, topping 14,000 for the first time since October of 2007. Broader market indices were also up. Stock analyst Heather Brilliant, of Morningstar, says the market's now approaching the all-time highs it reached in the heady days before the recession.

HEATHER BRILLIANT: Investors really have chosen to focus on the positive, this week in particular. It was not all positive all week. But clearly, investors are very interested in any signs of an improving economy and recovery, both in the U.S. and globally.

HORSLEY: Friday's jump in the stock market followed a report on job growth that was solid but not spectacular. According to the Labor Department, U.S. employers added 157,000 jobs in January. The department also revised its numbers for earlier months, showing stronger job gains in 2012 than initially reported. White House economic adviser Alan Krueger says that's a good sign.

ALAN KRUEGER: We've done a lot of healing. We're not back to full health. But we're seeing signs that we're shaking off the effects of the Great Recession, the effects of the financial crisis. I think you see that in a lot of the housing statistics.

HORSLEY: The construction industry, which was particularly hard-hit when the housing market collapsed, has now added about 100,000 workers in the last four months. Automakers also reported strong sales on Friday. And the manufacturing index posted its strongest showing in nine months. All of that helped take the sting out of a report earlier in the week, showing the U.S. economy shrank slightly in the last three months of 2012. Even that unexpectedly weak GDP report offers something of a mixed picture, Krueger says, since consumer spending and business investment held up pretty well.

KRUEGER: GDP was dragged down because we saw the biggest decline in federal defense spending in 40 years. I think that's a sign of what could happen if the sequester were to take effect.

HORSLEY: The sequester is the big, automatic cut in government spending that's supposed to begin next month. Neither the president nor the Congress really wants that cut, which would affect nearly all government programs, including defense. But congressional Republicans insist some form of serious spending cut is necessary, to get control of the federal deficit.

SEN. MITCH MCCONNELL: Government spending is completely out of control, completely out of control.

HORSLEY: That's Senate Republican Leader Mitch McConnell. While the White House would like to replace the sequester with a mix of more targeted spending cuts and higher taxes on the wealthy, McConnell says forget it.

MCCONNELL: Clearly, it's the spending we have to deal with. And now is the perfect time to do so.

HORSLEY: Spending cuts at all levels of government are already visible in the jobs data, which show a decline of more than half a million government jobs over the last three years. The White House says deficit reduction should be just one part of a broader economic strategy. Economic adviser Krueger warns cutting too much more, too quickly, could reverse the recovery.

KRUEGER: I think it's most important that Washington doesn't get in the way; that through bad policy like the sequester or gridlock, we don't stand in the way of improving economic activity; and that we help to bring more confidence back.

HORSLEY: Morningstar's Heather Brilliant agrees. Washington missteps could still pull the plug on the market rally. For now, though, investors seem to be banking on policymakers to do the right thing - if only after waiting for the last minute.

Scott Horsley, NPR News, the White House.

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