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Wall Street bounced back from two days of heavy losses Friday, despite the worst reading on the job market in recent memory.

The Labor Department reported unemployment surged to a 14-year high of 6.5% in October, passing the peak of 6.3% seen after the economy's last recession in 2003, while nonfarm payrolls shed 240,000 jobs, worse than expected. Even more disconcerting was the revision to September's data on job losses, which had initially shown 159,000 lost jobs but was revised to up to 284,000.

Friday's dismal report comes on the heels of several other indicators that paint a gloomy picture for the U.S. economy. Gross domestic product shrank 0.3% in the third quarter, its first contraction since 2001, and appears unlikely to recover soon. Analysts expect a wider decline in the next two quarters; Goldman Sachs is projecting GDP to come in at -3.5% in the fourth quarter and -2.0% for the first quarter of 2009. The firm also predicts unemployment will jump to 8.5% by the end of next year.

The declines in economic growth come as U.S. consumers pull back on their spending, which could spell disaster for retailers. According to data released earlier in the week, retail chains recorded their worst same-store October sales since at least 1969.

Despite the warnings signs for the U.S. economy Wall Street ran out to morning gains on Friday, thanks in large part to the heavy declines of the two prior sessions. Optimism for further government intervention in markets, like rate cuts from the Federal Reserve, may also have had a hand in the rally. Goldman Sachs predicts the Fed will cut its benchmark interest rate by another half point, to 0.5%, by the end of the year.

The Dow Jones industrial average picked up 193 points, or 2.2%, to 8,889 by mid-morning; while the S&P 500 added 20 points, or 2.2%, to 925; and the Nasdaq 39 points, or 2.4%, to 1,647.

The glut of bad news for the economy comes at an inopportune time for president-elect Barack Obama. With the early days of his presidency already handcuffed by the Treasury Department's financial rescue plan and other government programs instituted before his Election Day win, Obama is also being asked to set the country's direction earlier than virtually every other president-to-be in history.

From his choice of treasury secretary to his support for another congressional stimulus package, every move Obama makes between now and Inauguration Day is likely to substantially impact financials. Obama, huddling with economic advisers Friday, is expected to hold a press conference to discuss a policy plan later in the day.

One major hurdle that Obama will need to clear will be determining whether to aid the ailing U.S. automotive industry. The chief executives of Detroit's Big Three were on Capitol Hill Thursday to meet with House Speaker Nancy Pelosi and other lawmakers. They have been pushing for loan packages that will enable them to retool for production of more energy-efficient vehicles and cope with their health care and pension obligations.

Ford Motor (nyse: F - news - people ) recorded to beat third-quarter revenue estimates when it reported earnings early Friday, but its cash burn rate accelerated rapidly to $7.7 billion in the quarter. If the pace keeps up, and the automakers don't get the federal aid they have been requesting in time, Ford's $18.9 gross cash will only last into April 2009. Despite the dangers lurking, Ford shares added 1.0% Friday. Rival General Motors (nyse: GM - news - people ), is also burning cash at a quicker pace, to the tune of $6.9 billion in the third-quarter, according to its earnings report. With cash and other readily-available assets of $16.2 billion, GM, like Ford, has enough on hand to last into April at its current burn rate. GM shares were halted prior to its release, but were up 0.6% before being put on hold.