The stock market gets nervous ahead of Friday’s March jobs report

Some pre-jobs report jitters.

The Labor Department is scheduled to release the non-farm payrolls numbers on Friday. Economists surveyed by Bloomberg are projecting that the economy added 200,000 jobs in March.

That wouldn’t be a great report since economists say that making a significant reduction in the unemployment rate would require something above 250,000 new jobs per month, but 200,000 jobs in March would be enough to reassure investors that the U.S. economy continues to chug along despite the baggage of higher taxes and cuts to government spending enacted by Congress earlier this year.

But…

Today’s release of the ADP jobs survey came in below expectations. The private report, which almost never exactly tracks the government numbers, showed a gain of 158,000 jobs in March when economists had been expecting 200,000 net jobs.

And nerves got stretched a little tighter today when the Institute for Supply Management’s survey of purchasing mangers came in below both the February number and below expectations. The index fell to 54.4 in March from 56 in February. Economists surveyed by Bloomberg had expected a 55 reading on the index. (In this index any number above 50 indicates that the economy is expanding.)

With stock market indexes near all time highs, it’s easy to understand why traders and investors might be nervous about Friday’s jobs report. Read more

Nothing in today’s inflation report to make the Fed change course

Two normally important bits of economic news released this morning. Because of Hurricane Sandy, only one actually presents useful information. The other was rendered essentially meaningless by the storm.

Let’s start with the meaningless first.

Initial claims for unemployment rose to 439,000 for the week ended on November 10. That was a huge jump from the revised 361,000 for the week that ended on November 3.

Has the economy suddenly plunged into the void? Nah. The hurricane prevented thousands of newly laid off workers from filing their initial claims for unemployment in the previous week. The huge jump is a catch-up effect. It’s likely that we’ll see the initial claims number revert to its recent range of 360,000 to 400,000 in coming weeks.

Continuing to the meaningful side, inflation data showed that the headline Consumer Price Index (CPI) rose by 0.1% in October. That was down from a 0.6% increase in September. The core CPI, which excludes energy and food costs, rose by 0.2% in October. That was slightly above the 0.1% monthly increase from July through September.

The headline inflation rate dropped on a 0.6% decline in gasoline prices. The core rate was pushed up by an increase in rental housing, apparel, and transportation services.

For the last 12 months, the headline CPI is up 2.2% and the core CPI is up 2%.

The continued very subdued rate of inflation removes any pressure on the Federal Reserve to change its current policy of low interest rates and quantitative easing. In recent days members of the Fed have talked about possibly increasing the duration or volume of bond buying in the current round of quantitative easing. Any ramp up in the program probably will wait until the Fed has a better idea of the economy’s growth rate—and the results of current negotiations in Washington over the fiscal cliff—but the low inflation rate certainly gives the Fed more rather than less room to move if needed.

Stronger than expected job growth sends gold down–here’s the logic

Jobs numbers for October better than expected. Gold down. That’s not the normal reaction in the price of gold to better than expected growth. Normally, gold would rise on inflation fears if the economy were growing faster than expected.

I think I understand the market reaction. See if this makes sense to you.

In October the economy added 171,000 net jobs. That was up from a revised 148,000 in September. (The September figure was initially reported as 114,000.) The consensus among economists surveyed by Briefing.com called for an increase of 125,000 in September.

The unemployment rate rose slightly to 7.9% from 7.8% in September as 578,000 people entered the labor force. (Which is what drove the unemployment rate up.) The labor force participation rate went to 63.8% from 63.6%. The gain in jobs came from people finding full-time jobs: Part-time employment fell by 269,000.

You might think that this picture—the economy growing slowly but faster than expected—would raise fears of inflation. That would hurt the dollar—since inflation would make the dollar less valuable—and push up the price of gold—which is a store of value in inflationary times.

But the market’s reaction to these numbers shows that there is no fear of inflation—with unemployment at 7.9% I think that’s a reasonable conclusion.

Instead the market seems to have focused on the possibility that better than expected growth might cause the Federal Reserve to end its current program of quantitative easing earlier than expected and revise its promise to keep interest rates at currently low levels through the middle of 2015.

I think the market is prematurely fretting over this worry. An unemployment rate of 7.9% isn’t going to produce a shift in Fed policy anytime soon.

Gold finished down 2.2% on the COMEX today. Silver fell 4.2%.

Error! Error! Will Robinson–this morning’s initial claims numbers don’t mean the economy is suddenly stronger

Sometimes the numbers don’t mean what they seem to mean.

This morning the Department of Labor reported that initial claims for unemployment fell to 339,000 for the week ended October 6. That would be a significant drop from the 369,000 claims in the week ended on September 29 and it would be the lowest level of initial claims since January 2008—except that it was all a statistical error.

The drop wasn’t a result of the economy suddenly getting better but of a misleading seasonal adjustment due to a surprising drop in initial claims from a single state that threw the normal seasonal adjustment process into a tizzy resulting in an overstated drop in initial claims.

It’s likely that the initial claims number for this week continued to rumble along in the 350,000 to 400,000 range that has been typical for 2012. We’ll know what the number actually was in a few weeks when the seasonal adjustment error drops out of the data.

In the meantime, I think it’s fair to think that the U.S. economy continues to muddle along with real, but very modest growth. Things didn’t suddenly get better over night. But neither is the economy slipping back into recession.

Jobs numbers tomorrow will keep this four day rally going–or not

The big economic news for the week comes tomorrow when investors get the September jobs numbers. The consensus forecast among economists surveyed by Briefing.com calls for the U.S. economy to have added 120,000 jobs in September. That would be an improvement from the 96,000 jobs created in August (although that figure is likely to be revised upwards in my opinion) but it would still be a far cry from the 250,000 or so jobs the U.S. economy needs to create monthly to make a significant dent in unemployment.

Today’s preview, the weekly new claims for unemployment, suggests that the modest forecasted increase in net jobs for September is about right. This morning the Labor Department reported that initial applications for unemployment rose 4,000 to 367,000 in the week ended September 29. Economists surveyed by Bloomberg were looking to a total of 370,000 new claims for the week.