When the jobs Report is weaker than desired, U.S. stocks fall. The Wall Street Journal reports on the most recent jobs report and its effect on stocks.
U.S. stocks slipped Friday after a slightly weaker-than-expected jobs report.
The Dow Jones Industrial Average declined 28.01 points, or 0.2%, to 18240.49, and the Nasdaq Composite shed 14.45 points, or 0.3%, to 5292.40.
The S&P 500 fell 7.03 points, or 0.3%, to 2153.74 Friday, leaving it down 0.7% for the week and snapping a three-week winning streak.
Steady dividend-paying stocks led the weekly declines, as more investors warmed to the idea that higher interest rates are likely before the end of the year.
The stock market is generally over-valued. When the Fed hints at an interest rate increase stocks fall. And when hiring is off stocks fall as well. That is how stocks are affected by the jobs report. The U.S. economy has slowly but surely recovered from the 2008 financial crisis. But is this as good as it gets or will the employment picture continue to improve and help stocks along the way?
The Non-Farm Payroll Report
The most recent jobs report was the ADP National Employment Report which came in at 154,000 new private sector jobs in September after consensus estimates were for 166,000 jobs with a range of 140,000 to 181,000. This report is commonly watched as an indicator of the U.S. Labor Department’s non-farm payroll report which is more comprehensive and given more weight by the market. According to Reuters the non-farm payroll report will come in around 175,000 keeping unemployment steady at 4.9%
The ADP figures come ahead of the U.S. Labor Department’s more comprehensive non-farm payrolls report on Friday, which includes both public and private-sector employment.
Economists polled by Reuters are looking for U.S. private payroll employment to have grown by 170,000 jobs in September, up from a gain of 126,000 the month before. Total non-farm employment is expected to have risen by 175,000.
The unemployment rate is forecast to stay steady at the 4.9 percent recorded a month earlier.
For the time being unemployment is low and remaining steady in the 5% range. The concern of traders is what happens when the Fed raises rates?
Interest Rates and Jobs
Forbes is predicting a December rate increase.
The 156,000 new jobs produced last month fell short of the Street’s outlooks that ranged from 166,000 to 175,000. Unemployment inched up to 5% from 4.9%, another forecast that wasn’t on the radar.
What could that mean for the Federal Reserve? Most likely nothing that Wall Street may already have been anticipating, and that’s a step up in interest rates in December by about 0.25 basis points, according to the Chicago Mercantile Exchange’s FedWatch futures tool. Before the jobs report and the Fed member chatter Friday, the likelihood of an increase in December was at 63%. By midday, it had shot up to 70% and the three major benchmarks had taken decidedly sharp turns to the downside.
The point is that higher rates can slow the economy and slow hiring. Stocks go down as these indicators suffer.
