Why Slower Job Growth Can Mean a Positive Stock Market
June 10, 2019
By Michael List
Last week we received a pair of employment reports that disappointed many people in spectacular fashion. The jobs added were well below expectations for both private employers and the government. However, the stock market’s reaction was immediately positive. The bad news became good again, in so much as, it provided more evidence to the Federal Reserve that interest rates should not be markedly higher than they are today.
Monthly U.S. Jobs Report: What to Know
At the beginning of every month, ADP (Automatic Data Processing, Inc., a major payroll service provider) and the Bureau of Labor Statistics (BLS) publish employment data from the prior month. These are some of the earliest economic data releases and many economists use these reports to get a pulse on economic growth.
What was so disappointing about the May 2019 jobs report?
For May, analysts were expecting employers to add around 180,000 new jobs while ADP calculated only 27,000 and BLS around 75,000 (these numbers are subject to revisions as more comprehensive data is received).
But when expectations miss the reported data by this much, it is important to remember that one month does not make a trend. The monthly changes in jobs can be volatile and be affected by a variety of factors including weather (i.e. historic flooding in the Midwest), though the agencies make an effort to seasonally adjust the data.
To smooth out some of the noise, economists look at rolling periods like the "past three months" or "past six months". Because, there were so many jobs added in April, the rolling 3-month average is around 150,000 from both BLS and ADP. While this is below the 2018 average, it is on pace with the lows reported during the last half of 2017.
What to expect from the economy moving forward:
While the report did surprise on the downside, it reaffirms what we have been expecting: Economic growth will continue to slow, but will remain positive. Employers added jobs during May, the unemployment rate remains at 3.6 percent, and wages increased 3.1 percent. As we transition to the second half of 2019, markets will remain volatile. Our portfolios will remain broadly diversified to participate in the good surprises and limit the effects of the bad ones.
While few investors like volatility, there are ways to position your portfolio to moderate its effects. At Security National Bank, our 135 years of experience with rising and falling markets gives us firsthand knowledge on how to make your investments achieve your goals. If you would like to review your plan, please reach out to an advisor.
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