The US was worth waking up to on Friday, with the S&P 500 hitting another record high at the close as the latest jobs report revealed the world’s largest economy unexpectedly shed 23,000 jobs in July. Investors, who had already been preparing for another solid reading, were This way grateful for the less-hot labor data which instantly subdued speculation of a rate hike by the Fed at next month’s meeting. The figures were softer than nearly all expected. Economists forecast an increase of around 80,000 jobs. But the Labor Department presented a decrease and the last months took an even deeper contraction. Payroll employment in May and June was downwardly revised by a combined 103,000 positions. The unemployment rate fell to 4.
1 percent, but this reflected a 264,000 drop in the labor force, resulting in the lowest participation rate since years. Average hourly earnings increase at a slower pace than expected. Markets responded quickly. The S&P 500 spiked 0.62 percent higher to close at 7,757.64. The Nasdaq Composite increased slightly by 1.
3 percent while the Dow Jones Industrial Average posted a mild increase. All three major indexes recorded their best weekly percentage gains since April. Futures pricing pushed probabilities of a September hike down from about 55 percent to 40 percent. Treasury yields declined as the prospect of tighter monetary policy diminished, providing investors with another boost.
Such a response exposes how attentive the market has been to the Fed. The new and less prescriptive rule of chairman Kevin Warsh has only required the central bank to release less FOMC forecasts, so investors have been compelled to analyze each economic data release for implications. The mild jobs report arrived when concerns about inflation had already abated in part due to Iran-Oman Strait of Hormuz talks and declining crude prices.
What came was a risk to the upside, which benefited the stock market, Mainly tech and semis. Some industries did not get the same boost. The modest employment pick-up in health care (pace still slower than their recent average), large job losses in retail trade and local government education and job trimming in financial activities contrasted the overall message of softening labor markets to the trading rooms: rates do not seem so urgent any more, at least for now.
The closing highs are reassuring to ordinary investors after a more volatile stretch; savings and retirement accounts, and index funds tracking the S&P 500, hit new highs. Yet the data are both reassuring and troubling; the economy’s underlying strength is doubtful, with a declining workforce and a run of weaker data in consumer-oriented industries. Firms are still wary of putting on more workers, in the face of global and trade-related uncertainties, and saving more.