Rattled Investors

The US unemployment rate dropped sharply last month, but employers continued cutting jobs in January as businesses remained insecure about the economic outlook.

The jobless rate fell to 9.7% from 10% in December, the Labor Department said Friday, because its survey of households found more people landed jobs than entered or returned to the labor market.

But a separate survey of employers, which counts how many workers are added or cut from payrolls, found that 20,000 jobs were eliminated last month. And revisions to last year’s data found far more jobs were lost over the 12 months than previously predicted.

After rising virtually uninterrupted since its bear market low in March, the stock market is suddenly exhibiting a fragility not seen since the dark days of the financial crisis. Rising investor angst was evident Thursday, when mounting worries over debt problems in Europe and a fresh reminder that jobs are hard to find in the USA sparked a sell-off that pushed the Dow Jones industrials briefly back below 10,000 on its way to a 268-point loss — its biggest one-day drop since April.

The Dow, which hit a peak of 10,725 on Jan. 19, closed down 2.6% at 10,002.

Talk of a correction, or a drop of 10%, is also heating up, with the broad market now down 7.6% since its January high. It’s one thing to talk about a correction, but when it happens, investors start to have visions of March ‘09.

The latest worry surrounds a familiar concern: debt. This time it’s not ballooning debt at the corporate level, such as banks, that has investors worrying about defaults; it’s ballooning deficits facing countries such as Greece, Portugal and Spain.

The ability of bad news to “overshadow” good news and rattle investors is “more about the psyche of the investor than the outlook for the economy.