Stocks soar, but not jobs

Stocks climbed to their highest levels in more than a year yesterday. A big rally pushed the Dow Jones industrial average up 203.52 to 10,226.94, its highest close since Oct. 3 of last year. Stocks have soared more than 60 percent from their dismal lows hit this spring.

US unemployment reached its highest level in 26 years just a few days ago. The nation’s jobless rate, now 10.2 percent, probably isn’t done climbing and would set a post-World War II record if it reaches 11 percent.

Stock market bulls will tell you this is not really a problem at all. Unemployment is one of the last things to recover once the economy climbs out of a recession. The economy started to grow again sometime during the third quarter, so we’re on track. Jobless recoveries, at least in the early stages following a recession, have become the norm, and employment problems should slowly fade away.

A lot of that may turn out to be true, but there are reasons to be cautious about both stocks and jobs.

Unemployment is a more serious problem this time. The official jobless rate is very high, and other measures that take into account discouraged people who have given up looking for work are especially bad. Consumers are a bigger part of the economy than ever, and jobs aren’t their only problem. They’ve got debt worries, too.

Meanwhile, stocks have been climbing straight up without any real setbacks since March. Even if the economy continues to improve and stocks deserve higher values, it’s unlikely markets will move in a straight line toward that higher ground.

In fact, stock prices started to wobble in mid-October and looked like they could be headed for a fall. But three things have helped bolster markets and send them even higher since.

For one, companies started to report business results for the third quarter, and the numbers were strikingly good. One after another, big companies posted earnings that beat analyst forecasts.

For another, business productivity soared during the third quarter. Companies slashed costs while delivering products and services. Customers didn’t buy more, but companies earned bigger profit margins on what they sold.

“There will be a long line of ‘firsts’ and ‘mosts’ coming out of this recession,’’ says James Weiss of Weiss Capital Management in Concord. “One of the ‘mosts’ is that this is the most aggressively that business has reacted to a recession by cutting costs.’’

The final recent boost for stocks arrived just yesterday, when the Group of 20 nations agreed to maintain economic stimulus efforts. Governments will continue to pump money into the global economy.

The combination of strong profits, more productivity, and a commitment to stimulus got stocks moving again. With interest rates on other investments so low, they have little competition.

But economic recoveries and stock market rallies need consumers to buy more products, sooner or later. Double-digit unemployment is going to make the pattern of jobless recovery a slower and more uncertain outcome.

■ The Massachusetts chapter of the Arthritis Foundation is honoring Savings Bank Life Insurance chief Bob Sheridan with the Dr. John I. Sandson Lifetime Achievement Award during its annual dinner at the Fairmont Copley Plaza tonight. Sheridan, a big supporter of the foundation for several years, most recently sponsored its annual Arthritis Walk.

Steven Syre is a Globe columnist. He can be reached at syre@globe.com.