Forecasts that the U.S. is headed into recession took another lump from the economic data with today’s release of the Labor Department’s report on initial claims for unemployment. For the week ended on February 13, new claims for unemployment fell by 7,000 to seasonally adjusted 262,000. That’s the lowest level of initial claims since November and below the projection of 275,000 new claims by economists surveyed by Reuters.
The four-week moving average, a less volatile read on the underlying trend, fell by 8,000 to 273,250 with last week’s report.
Again, no evidence from this report that the U.S. economy is about to shift into higher gear. But also no evidence that the economy is sliding toward recession.
Is this kind of indicator of modest growth enough to reassure the Federal Reserve about the underlying strength in the U.S. economy so that the Fed raises interest rates once or twice in 2016? That’s the big question right now since the market decided a week or two ago that the Fed wouldn’t raise interest rates at all in 2016 and that the first increase might not come until relatively late in 2017. It doesn’t take much in the way of economic strength–an upside in industrial growth yesterday and slightly stronger initial claims numbers today–to raise doubts about that consensus.
All it takes is a little doubt when the market isn’t pricing in any doubt at all.
There was enough good news in this morning’s February jobs numbers to keep alive hopes that the recent sluggishness in the U.S. economy is “only cold weather.”
But with the Standard & Poor’s 500 at new all-time highs this week, I’ve got to wonder how long the “I’ll gladly give you job growth tomorrow for another 1% advance in the stock market today” scenario can run.
At some point the economy needs to deliver something other than mediocre job growth.
In February net nonfarm payrolls added 175,000 jobs. That was above the consensus among economists surveyed by Briefing.com of 163,000 net new jobs for the month. The Labor Department also revised its estimate of job additions in January to 129,000 from the prior 113,000. The unemployment rate inched upwards to 6.7% from 6.6% as more workers searched for jobs.
The worst part of the monthly report was that the stronger than expected jobs number didn’t add more to wages in the month. Read more
This morning’s January jobs number was disappointing. The economy created 113,000 net new jobs against a consensus among economists surveyed by Briefing.com of 175,000. The very, very disappointing December total of 74,000 was revised upward, but only by a tiny 1,000 jobs.
And yet the U.S. stock market is up strongly today. As of 2:30 p.m. New York time the Dow Jones Industrial Average was up 0.93% and the Standard & Poor’s 500 was up 1.15%.
It’s important to try to figure out why. Even if you conclude the market is wrong, you need to know what it is thinking since it’s that thinking that drives stock prices in the short run.
Here’s my survey of possible reasons: Read more
I think tomorrow’s jobs number for January is likely to have a big effect on the markets. But I’m not sure we’ll really learn much of anything about the economy because of uncertainties in the data.
I know what the financial markets want to hear—that the paltry 74,000 jobs added in December was an anomaly, that the initial December total has been revised upwards, and that the January total at least matches the consensus forecast of economists surveyed by Briefing.com of 175,000 net new jobs
Those results would argue that the strength in today’s initial claims for unemployment—a decline of 20,000 in the weekly total for the first drop in three weeks—and the improvement in the Purchasing Managers Index for the service sector to 54 in January from 53 in December are truer indications of the strength in the U.S. economy than the drop in the Purchasing Manager’s Index for manufacturing or disappointing retail sales numbers.
But although I think that kind of news would move global stocks higher—and disappointing numbers would push them lower—I’m not sure that the data will mean as much—one way or the other—as the market wants in its current search for direction.
Why ? Read more
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.) Read more