Why There’s Nothing Exciting About the Jobs Reading

2 mins. to read

It sure doesn’t take much to get this stock market excited, which we have seen over the past six months as stocks have edged higher in spite of any concerns regarding the fiscal cliff and the sequestration. Even a potential stock market bubble in Japan is being pushed aside. 

So, when the non-farm jobs market reading came out last Friday and the stock market surged upward, I was wondering what was wrong with the mentality of traders. Personally, I was underwhelmed with the results from the jobs market. 

It’s true that we saw a slightly better-than-expected non-farm jobs market report, with the creation of 175,000 new jobs in May. This reading was above the Briefing.com estimate of 170,000, and the downward revised 149,000 new jobs created in April. I think the market was just happy that the reading didn’t disappoint, but the fact is that it was not a blow-away reading. Something in the neighborhood of over 200,000 new jobs would have sufficed to make me think the jobs growth was on the right path; in reality, the reading was only average, and I didn’t bother to take a second look. There were 11.6 million out of work, according to the U.S. Bureau of Labor Statistics. 

Wall Street may be pleased with the jobs market. Maybe it was because the unemployment rate edged up to 7.6%, which is not great, but is much better than the over 12% unemployment in the eurozone and the 26%-plus in Spain and Greece; however, ours is nowhere near what we can call a healthy jobs market. 

It will take time for the jobs market to recover. The percentage of teenagers looking for work was a dismal 24.5%—it’s going to be a long summer of nothing to do. 

The only positive from the report is that the rise in the unemployed might make the Federal Reserve think long and hard before trimming down its bond buying at next week’s Federal Open Market Committee (FOMC) meeting. This could allow the Fed to continue to print money and drive stocks. 

The number of workers designated as long-term unemployed or out of work for 27-plus weeks was 4.4 million. The problem is that the actual amount of workers with no jobs or who are underemployed is much higher given the fact that many workers have dropped out of the jobs market. 

My concern involves the group that has been unemployed for an extended period. The Federal government will likely be cutting their benefits due to the sequestration; this is not good and, again, hurts the unfortunate workers. (Source: Luhby, T., “Federal budget cuts reduce unemployment insurance for long-term jobless,” CNNMoney.com, June 7, 2013.) 

So, with the jobs market still hesitating, the Fed will be able to continue printing money. For you, that means there will be more money to be made in the stock market, but not in bonds.

by George Leong, B.Comm. 

This article Why There’s Nothing Exciting About the Jobs Reading was originally published at Investment Contrarians

Comments (0)

Comments are closed.