After a shockingly low 38,000 jobs created in May, traders got a surprise of the opposite kind for June, with the employment report showing 287,000 jobs added to nonfarm payrolls. Even the jobs numbers are volatile, it seems.
By Vikram Rangala
Friday, July 8, 2016
The 287,000 number exceeded even the highest economist estimates. The minutes of the June Federal Reserve meeting showed that besides Brexit, consistent job creation was a major concern. The Fed needs clear indication that job growth will continue before it can consider a rate increase this year.
The major question before the Fed and investors now is this: which number, if either, is an aberration? If May's low number was the odd one, then we can look for the economy to continue creating jobs at a robust pace, which should convince the Fed to put a rate hike back on the table.
However, if it turns out that May was the beginning of a real slowdown in job creation, with June just a last hurrah, then the Fed will almost certainly leave rates unchanged. Moreover, if job growth resumes a downward trend in July, that would be a sign of a much larger problem.
The US economy is still on the longest unbroken streak of job creation in its history, with 76 months of net job creation. Even the low number in May was a net positive. The last time the number was negative was February, 2010, when the country was emerging from the Great Recession.
The markets had been waiting for Friday's report and reacted with high volume, ending a three-day decline and closing the week with the S&P 500 at a new all-time high.
The new high was just a few points above the previous one, but a long time coming. The S&P 500 had gone 286 days approaching then backing away from the record, including a couple of major dips. It was the longest stretch without a record outside of a bear market, which can last multiple years.
One thing that happened in those 286 days was the first rate increase by the Fed since 2009. The decline that followed that December 2015 rate hike brought a lot of speculation about the return of a bear market and the possible chilling effect of higher interest rates on the long rally.
After Brexit, the worry among many fund managers and others was whether the effects, which we're already seeing in the panic in UK real-estate and elsewhere, might also impact the rest of the world. The US economy is still believed to be in good shape, with 4.7% unemployment and a stock market up over 200% since 2009. Today's job number helped to reassure everyone that it is, in fact, still in good shape.
The S&P 500 rose nearly 1.5 percent to 2,128.88, after briefly topping the 2,130.82 record close from May 2015. The Dow Jones Industrial Average climbed 1.4 percent, undoing its post-Brexit losses.The US dollar strengthened versus the euro by 0.2 percent to $1.1043 per euro.
Today's high should reassure investors that the US stock market is still capable of making new highs. On Monday, we may see one of those situations when the market rallies mainly on the news that the market rallied the week before.
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