It’s no surprise that stocks are in the red after the weaker than anticipated employment figures for June, but the depth of losses roughly 90 minutes into the session are staggering.

The Dow has dropped 168 points to 8335 (-1.99%), the S&P 500 has shed 20 points to 903 (-2.15%), and the Nasdaq is the worst of the bunch with a 45-point loss to 1801 (-2.42%). 

The pace of losses in the labor market had been moderating for four months but in June nearly half a million jobs vanished from the economy, in contract to widespread expectations. The Bureau of Labor Statistics said 467,000 jobs were lost, pushing the unemployment rate to 9.5%, the highest in 26 years.

“The heavy loss of jobs in June is a warning that the road to recovery will be bumpy, but doesn't yet indicate that we have gone off the track,” said analysts from IHS Global Insight, who expect the unemployment rate to hit 10.3% in the first months of 2010. “The report underlined that it will take much longer for the labor market to bottom out than for GDP and industrial production.”

Average weekly hours hit a cycle low at 33.0 hours, and wage growth was nonexistent during the month, though it is up 2.7% compared to last year.

The morning’s Jobless Claims report also suggests a turnaround is still a long way off. In the final week of June, another 615,000 Americans filled for first-time benefits, marking the 22nd straight week that claims have been above the 600k threshold.

To put that into perspective, sustained weekly filings north of 400k are considered recessionary.

The number of people continuing to receive jobless benefits fell 53k in the week ending June 20, but with 6.70 million people on the dole a single week of declines is far from inspiring.

Moreover, many economists noted the decline in continuing claims doesn’t necessary indicate job creation.

“A record large number of claims recipients are rolling off of the standard 26-week period, but still cannot find work,” said Deutsche Bank’s Joseph LaVorgna. “As such, they are eligible to receive benefits from the supplemental benefits programs but they do not show up as continuing claims recipients.”

The only other data release of the day was Factory Orders at 10:00, which rose 1.2% in May. Durable goods orders rose 1.8% in the month, while nondurable goods orders rose 0.7%. Those figures are better than forecasts, yet markets were still reeling from the labor figures and continued to tumble afterwards. 

Three data releases at 10:00 failed to sing in tune with each other. A key indicator of output showed some improvement but is still contracting overall, and while contracts for home purchases are on the rise, spending on the construction of new homes it at historic lows.

In real estate, the Pending Home Sales Index improved for the third straight month in April, jumping 6.7% in the month. Since last year, the index has now improved 3.2%.

“Housing affordability conditions have been at historic highs, but now the $8,000 first-time buyer tax credit is beginning to impact the market,” said NAR’s chief economist Lawrence Yun. “Since first-time buyers must finalize their purchase by November 30 to get the credit, we expect greater activity in the months ahead, and that should spark more sales by repeat buyers.”

Regionally, results were volatile. The Northeast saw contracts soar 32.6%, the Midwest reported a 9.8% advance, the West saw a 1.8% gain, while the South slipped 0.2%.

“The market has already bottomed in some areas, but this is an unusual housing cycle with some areas improving rapidly while others languish or decline,” Yun said. 

Released at the same time was the ISM Manufacturing index, a key sentiment-based survey based on the opinions of business executives. It failed to grow in June but conditions did improve in line with expectations. The index moved up 2 points to 44.8, a little more than 5 points below the level indicating growth.

Seven of the 18 industries surveyed reported growth in the month, helped by a 6.5-point improvement in the Production component, which broke into growth mode at 52.5. Employment saw a similar 6.4-point rebound, yet it remains far from expansion at just 40.7. 

On the negative side, New Orders dropped 1.9 points, pushing it back into contraction. Inventories also moved downwards, but all other components improved from May.

“Overall, a slow recovery for manufacturing is forming based on the current trends in the ISM data," said Norbert J. Ore, chairman of the ISM’s Business Survey Committee.

John Herrmann from Herrmann Forecasting said the report was indicative of growth in the coming months.

“This June ISM report, along with our forecast for a further rebound in August - December, shows that the US recession should end in 3Q-2009, and that US real GDP growth is 4Q-2009 is likely +3.22%,” he said.

The bad news from 10:00 was Construction Spending, which lost 0.9% in May, pushing the value to its lowest level in more than half a decade. Analysts were expecting a drop of 0.5%.

In addition, the 0.8% gain in April was revised down to 0.6%.

Details were pretty weak: residential construction fell -3.4%, as single-family homes declined 4.5% and multi-family homes plummeted 9.6%. On the plus side, private nonresidential construction inched up 0.5%.

“The construction spending figures should  ultimately be lifted by stimulus-related spending on infrastructure projects as well as the bottoming of the housing market,” said Deutsche Bank’s Joseph LaVorgna. “We expect this to become more apparent later in the second half of the year.”