The U.S. Department of Labor publishes the "Jobs Report" on the first Friday of each month. It is the most closely watched economic report on Wall Street and often moves the stock market. The report closest to Labor Day, which was last Friday, usually gets the most scrutiny.
Analysts were expecting 205 thousand jobs were produced during August, but only 170 thousand were actually produced. However, we learned that the two previous reports had under-reported 44 thousand new jobs. Also, August has historically been the month most often revised upwards. The rate of unemployment dropped to 5.1%, and Labor Force Participation Rate remained unchanged. Lastly, the U-6 rate of unemployment, which includes those people forced to work part-time because they cannot find full-time jobs, continues its long, slow decline. Overall, the American jobs report was a good report.
So, why did the Dow lose 272 points? Because good news is bad news. Huh? A tighter jobs market makes the Fed more likely to raise interest rates when it meets next week, and the stock market fears that . . . too much. (Of course, the possible worldwide slowdown in economic growth largely caused by China was also a factor, but certainly not the only factor.) If the Fed does increase interest rates next week, which I doubt, it will have been the most widely-heralded increase in history. Wall Street will not be surprised.
I have long argued that the only thing predictable about the stock market is that it will over-react to whatever happens. For the last three years, the Fed has been promising to raise interest rates when the economy is strong enough. So, why is it bad news that the Fed thinks the economy is strong? Will the increased interest costs of one-quarter of one percent actually slow down economic growth? Yes, but not 272 points worth. It over-reacted as usual.
For Labor Day 2015, just celebrate the good jobs market . . . but borrow now before rates go up?
Analysts were expecting 205 thousand jobs were produced during August, but only 170 thousand were actually produced. However, we learned that the two previous reports had under-reported 44 thousand new jobs. Also, August has historically been the month most often revised upwards. The rate of unemployment dropped to 5.1%, and Labor Force Participation Rate remained unchanged. Lastly, the U-6 rate of unemployment, which includes those people forced to work part-time because they cannot find full-time jobs, continues its long, slow decline. Overall, the American jobs report was a good report.
So, why did the Dow lose 272 points? Because good news is bad news. Huh? A tighter jobs market makes the Fed more likely to raise interest rates when it meets next week, and the stock market fears that . . . too much. (Of course, the possible worldwide slowdown in economic growth largely caused by China was also a factor, but certainly not the only factor.) If the Fed does increase interest rates next week, which I doubt, it will have been the most widely-heralded increase in history. Wall Street will not be surprised.
I have long argued that the only thing predictable about the stock market is that it will over-react to whatever happens. For the last three years, the Fed has been promising to raise interest rates when the economy is strong enough. So, why is it bad news that the Fed thinks the economy is strong? Will the increased interest costs of one-quarter of one percent actually slow down economic growth? Yes, but not 272 points worth. It over-reacted as usual.
For Labor Day 2015, just celebrate the good jobs market . . . but borrow now before rates go up?
