Although today's report of a sharp rise in unemployment is bad news for workers, it was another shot in the arm to the nation's bond markets, which have recovered rapidly from their February lows.
The late afternoon announcement from the Federal Reserve that the money supply declined sharply and that bank loans fell $848 million triggered a further upsurge in the bond market.
"No doubt about it, there is clearly a change in psychology," said Peter Kelly of Merrill Lynch, Pierce, Fenner and Smith. He said the weakening economy, the decline in interest rates and the "big decrease in demand for credit" are all good news to buyers of securities with fixed-interest payments. c
They key government issue, the 30-year bonds maturing in 2010, rose $37.50 per thousand dollars of face value today alone. Since Feb. 21, when bonds hit their lows, the price of the 30-year bonds has risen more than $225. In February, a bond with a face value of $1,000 cost an investor about $905. Today, that same bond costs nearly $1,130.
The stock market always reacts more ambivalently to news of recession than does the bond market. Stock prices have been true to form this week.
While the lower inflation and interest rates of a recession are good news for stocks, the decline in corporate profits that accompanies a business slowdown is bad for stocks.
The Dow Jones Industrial Average, which fell 8.27 points on Thursday, rallied slightly today to close up 2.13 points at 810.92.
The stock market already has factored in the impact of a recession on the prices of most stocks, said Newton Zinder, of E. F. Hutton & Co. The Dow average of 30 industrial stocks is nearly a hundred points below its level earlier in the year and has been bouncing around the 800 mark for several weeks.
"Actually, we've been breathing a sigh of relief," Zinder said. "The market has been looking for a recession for a couple of years. The surprise isn't the recession, it's that the expansionary phase lasted so long," he said.
Trading was light on the New York Stock Exchange, with volume declining from 32.48 million shares on Thursday to 28.27 million shares today.
More than 750 stocks on the NYSE rose in price today, while 652 declined.
Railroad and airline stocks did well.
Over on the American Stock Exchange, there were 279 stocks closing higher in price and 247 closing lower. The Amex Index was up 1.86 points to close at 254.81.
The decline in the money supply, which gave a last-minute thrust to the bonds market, came too late to have an impact on the New York Stock Exchange. The Federal Reserve announced its figures at 4 p.m., just as the closing bell sounds on the stock trading floor.
The Fed said the basic money supply, which includes checking accounts and currency in circulation, fell $2.5 billion in the week ended April 23. Although economists may differ on the importance of the money supply to the economy, they agree that a rapidly growing money supply contributes to inflation and economic growth while a shrinking one helps fight inflation but at the same time risks throwing the economy into a tailspin.
The decline in bank loans this week follows an even larger $1 billion decline last week.
In part because of shrinking demand for funds on the part of corporations, short-term interest rates have been falling rapidly. The federal funds rate, for example, which was trading in the 20 percent range at the beginning of April, was trading around 11 1/2 percent today.