Three votes against hitting the panic button on the recovery

Thursday's weaker-than-expected report on September manufacturing activity, and a higher-than-expected number of claims reported for unemployment benefits last week, gave some investors the excuse they needed to sell stocks -- following a few other pieces of disappointing economic data in recent days.

The result was a plunge of 203 points, or 2.1%, to 9,509.28 in the Dow Jones industrial average -- the biggest drop since July 2.

Ahead of today's report on September employment (the consensus forecast is for a net 175,000 jobs lost in the month), three economists provided their reasoning for why it's too early to hit the panic button on the economic recovery:

--- Michael Darda, MKM Partners: "The ISM manufacturing index came in at 52.6 in September, below the consensus expectation of 54 and less than the previous reading of 52.9. [Note that any reading above 50 indicates growth.] At the same time, jobless claims pushed up this week, and the stock market has begun to soften. The combination has caused some fear the recovery is being strangled in its cradle. . . . We don't think so. To wit: The ISM new-orders index is still at a level consistent with nearly 4% GDP growth in the fourth quarter. At the same time, the four-week moving average on first-time jobless claims continues to work its way lower . . . . Although we may not see actual job growth until late 2009 or early 2010, we believe an above-trend recovery cycle is on track."

--- Robert Brusca, Fact and Opinion Economics: "The day's data were not stellar for the economy. Yet this sort of irregular progress marks most recovery periods. The claims backtrack and the very minor ISM backtrack are nothing to be especially worried about. . . . The ISM still has rebounded very far and is a very strong level for this point in the business cycle. Claims are still in a downtrend. The trends are still our friends if we are betting on recovery."

--- Ian Shepherdson, High Frequency Economics: "The tiny dip in the ISM manufacturing index is not a disaster, despite the reaction in the equity market. . . . The actual reading of 52.6 is still very clearly consistent with an expanding economy. Moreover, some of the details of the report were quite encouraging. The export-orders index held onto almost all of its August gain, dipping just 0.5 point to 55.0. If sustained at that level indefinitely we would expect goods exports to settle at a very healthy 10% year-over-year growth rate.

"The disappointment over the ISM and, perhaps, the rebound in jobless claims . . . meant the market ignored the good news in yesterday's other reports. The key number was the pending home sales index, which leaped by a huge 6.4% [in August], the biggest gain since April and the seventh straight increase. It is consistent with September existing home sales rising to about 5.75 million from August's 5.1 million."

-- Tom Petruno