Employers shed 247,000 jobs last month, while the unemployment rate unexpectedly fell to 9.4%. Nonfarm payrolls showed the smallest drop since August of last year, and the June loss was revised down to just 303,000 (from the originally reported 322,000 drop). The unemployment rate fell for the first time since April 2008.

The numbers were better than forecast. Economists had projected 300,000 jobs to be lost, though the range of forecasts was very wide. Unemployment had been predicted to rise to 9.6%. A big reason for the improvement in the unemployment rate is that many people have either given up on looking for work or settled for part-time jobs. If those people are included, the rate would have been 16.3%.

Today’s report was just one of many signaling that the economy is finding a bottom, setting the stage for an eventual recovery. But what kind of recovery?

Some bulls are calling for 3% growth in the third quarter. This predicated in large part on the “Cash for Clunkers” program, a massive government subsidy for Ford (F), AutoNation (AN ) and others. The bulls also assume that consumers will continue to buy cars at the same rate they had recently. Though the program has initially been very successful, there are questions about just how much more demand exists from “clunker owners.” Not to mention the fact that this program is sucking growth away from 2010.

Retail sales don’t signal a return to boom times. Costco (COST ) reported a 2% drop in same-store sales, excluding gasoline. An executive with JC Penney (JCP) told Marketplace that her store is counting on new plaid patterns to drive back-to-school sales…

Plaid? If that’s what is being counted on to save the economy, we’re in big trouble.

Then there are earnings estimates. Bulls were quick to cheer the large number of second-quarter surprises. The problem is, however, that those positive surprises are not translating into higher full-year forecasts. In many cases, I’m seeing second-half forecasts effectively cut.

Consider Caterpillar (CAT). The company topped second-quarter profits by 51 cents per share, but analysts only raised their full-year projections by 37 cents per share. This is an effective 14-cent reduction in second-half forecasts. (It even factors in CAT’s recent guidance.) Hardly sounds like a green shoot, does it?

There is also the law of numbers to consider. Since the economy is in such a big hole, it will take an even faster pace of growth just to get us back to where we were. So while 3% growth may sound nice, it’s not enough to help most Americans feel like a recovery has started.

Don’t get me wrong — the economy is turning a corner and the data will soon show growth. But as today’s numbers show, it’s going to be a long, slow process. Nearly 1 out of 16 Americans are either out of work or involuntarily working part-time jobs. Plus, foreclosures and credit-card defaults are likely to continue rising.

Considering that recovery won’t feel like a recovery to many Americans, the stock market appears headed for a prolonged trading range, not the big rally that some have called for. We don’t know what the top of this range will be, though if the S&P 500 fails to close above its November 4 close of 1,005.75, we will be seeing what is at least a short-term top.
Read the full analyst report on “F”
Read the full analyst report on “CAT”
Read the full analyst report on “AN”
Read the full analyst report on “COST”
Read the full analyst report on “JCP”
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