Added October 8, 2010
The jobs report is out in the meantime, and it turns out to be very interesting from a certain point of view. It ties right in with what I am talking about in the big picture. Many government jobs were lost - more than were gained in the private sector. The stock market did not take a big hit, in fact, it went up in response, because the private sector did gain jobs (although not enough of them) and so people are just assuming that the Federal Reserve will just stimulate more and then everything will be fine again.
Here is the problem. As an economy matures - especially toward the end - more and more jobs are in the government sector and in the financial sector. We have a very mature economy in the meantime (thanks to the law against recessions) and are very near the end of the process. So, in modern times, one of the biggest chunks of jobs is in the government sector - and that has also been evidenced by the federal holidays, when the commute is definitely thinner than on other days (most commercial companies do not give their employees those days off).
So having such a large number of government-worker layoffs now is definitely not a good thing - and the private sector is clearly not strong enough to make up the difference (no surprise to me - we are very near the end of the economic cycle).
So the celebration by Wall Street - the market actually went up after the employment report came out, the word being that people are looking forward to more stimulus from the Fed to solve the problem - is quite misguided, what is going on makes perfect sense in terms of the big picture and is not good.
I think most people are thinking that as long as government is the primary source of the layoffs, things will probably be OK because the private sector is not getting hit. The problem is that since government is a primary employer during the late stages of an economic cycle, if it is laying people off, especially when the private sector has not recovered yet, that is a bad thing, not a good thing.