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Again, Wall Street Turns a Deaf Ear to Economy's Groans

The averages soar despite a worsening manufacturing picture.
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Mouthfuls of sour economic data are going down shockingly well on Wall Street again.

This morning, the National Association of Purchasing Management's index of factory activity

fell to its lowest level since February 1991, the end of the last recession. Nevertheless, the

Dow lately was ahead 159.6 points, or 1.8%, to 9234.7, while the

Nasdaq was up38.9 points, or 2.3%, to 1729.1. The

S&P 500 was higher by 18.4 points, or 1.7%, to 1078.1.

While reluctant to complain, traders had trouble reconciling the news. "There's no reason for it," said Jim Volk, co-director of institutional trading at D.A. Davidson, referring to the market's gain. "We haven't seen a change in the world situation or in consumer confidence."

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As for Thursday's data, the NAPM index plunged to 39.8 in October from 47 in September; anything under 50 indicates activity is contracting. Of particular concern within the report was a steep plunge in the new orders component. It fell to 38.3 in October from 50.3 in September, after rising for two months in a row. The production index also tumbled from to 40.9 in October from 51.3 in September.

The factory sector has been the worst part of the economy for more than a year, although the rate of decline moderated in August and new orders and factory production actually increased. That progress, however, was another casualty of the terrorist attacks.

"I was expecting a drop in the numbers, but nothing of the magnitude of what we got," said Michael Moran, an economist at Daiwa Securities."The report indicates deep weakness in manufacturing."

The employment index, within the NAPM report, fell to 35.1 from 41.2 in September. One day before the Labor Department releases its monthly employment report -- a key indicator of the overall health of the economy -- the number signals worse news to come.

"You can't sugar-coat this data," said Brian Jones, an economist at Salomon Smith Barney. "The data suggest that we could lose 100,000 jobs in the factory sector in tomorrow's jobs report." Jones forecasts the unemployment rate in October to jump to 5.2% from 4.9% in September.

In a separate report, the Labor Department said the number of initial jobless claims fell to 499,000 in the week ended Saturday, down from 500,000 in the week ago period. But, more importantly, it noted that the total number of people who collect unemployment benefits is rising.

In other economic reports, the Commerce Department said consumer spending in September decreased 1.8%, the largest monthly drop since January 1987, as many consumers stayed away from their local shopping malls in the wake of the terrorist attacks. Personal income was unchanged.