Two questions after today’s surprisingly grim December jobs report.
First, why did the U.S. economy add only 74,000 jobs in December? That’s a huge drop from the 241,000 added in November. (This figure was revised upwards from 203,000.) Economists surveyed by Briefing.com were expecting the economy to add 197,000 jobs in December.
Second, why has the U.S. stock market shaken off this big disappointment? The Standard & Poor’s 500 stock index was actually up 0.23% at the close. Emerging market stocks were up even more with the IShares MSCI Emerging Markets index ahead 1.8%. Emerging markets that trade roughly on New York time were up too—Brazil was ahead 0.8% for the day and Mexico 2.1%–so this isn’t just an artifact of markets closing before they heard the bad news.
Explaining this jobs report is basically guesswork at this point. Maybe the U.S. economy isn’t as strong as all the other data have indicated recently. Maybe this disappointing number is a result of statistical error in the always-problematic seasonal adjustments for holiday hiring, especially in a year when Thanksgiving fell so late in November. Maybe the frigid weather in December reduced hiring. Maybe November pulled jobs from December.
At this point we don’t know whether this very disappointing result is a significant data point that should lower projections of the economic trend or a one-off event that doesn’t say much of anything.
Wall Street is certainly more than willing to entertain the possibility today that this number is just a one-off event caused by weather or faulty seasonal adjustments.
But that’s not the only reason for the surprisingly positive response (or in the U.S. markets, the surprising absence of a more pronounced downward move.)
Remember that we’re still in a market where hopes for faster growth come packaged with fears that faster growth will result in higher interest rates.
Today’s data is, so far as I can tell from my sampling of Wall Street commentary, seen as unlikely to result in the Federal Reserve abandoning the gradual reduction of its $85 billion a month in asset purchases that the central bank began this month. But the consensus does seem to be that the Fed will take a very, very gradual approach to reducing its monthly purchases. The taper might indeed stretch out all the way to the end of 2014, Wall Street is speculating today.
But the more important conclusion, as far as the markets are concerned, is that if indeed this number does indicate a trend of slower job growth, it means that the Federal Reserve won’t simply hold short-term rates at their current near 0% level until mid-2015, as the consensus now believes. A job market anywhere near this slow could result in the Fed keeping rates near 0% all the way through 2015 and into 2016.
No interest rate increase in 2015 is a pretty heady prospect for a market that has nagging worries about a 2015 rate increase at the back of its mind.
Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. When in 2010 I started the mutual fund I manage, Jubak Global Equity Fund http://jubakfund.com/, I liquidated all my individual stock holdings and put the money into the fund. The fund may or may not now own positions in any stock mentioned in this post. The fund did not own shares of any stock mentioned in this post as of the end of December. For a full list of the stocks in the fund see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/.
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