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Jobs Report: Not Too Hot, Not Too Cold for Wary Wall Street?

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May 8, 2015

The latest temperature reading for the U.S. job market is … a comforting middle of the road? The report was not quite as strong as Street economists projected but it wasn’t the highly disappointing report that some had braced for after spotty readings from other employment measures in recent days. Stock futures were tipping higher ahead of and just after the Labor Department release after stock markets licked their wounds Thursday and overnight from a pretty good pounding and rising volatility earlier in the week (figure 1). Bonds also drew modest post-report buying interest, pushing benchmark Treasury yields lower; the dollar fell. 

Some analysts said the report may have been just weak enough to push a June rate hike off the table but keep a September hike a possibility—enough to calm Wall Street for now?

FIGURE 1: TICKING HIGHER.

The CBOE Volatility Index (VIX) closed above 15 on Wednesday and again on Thursday, the highest for the market’s “fear gauge” in over a month in the lead up to Friday’s jobs report.  Data source: CBOE. Chart source: TD Ameritrade’s thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.

The Details. The U.S. economy created 223,000 new jobs in April, a pretty big bounce from a revised 85,000 gain in March (slashed from 126,000 first reported). The increase in jobs and more people entering the labor force pushed the unemployment rate down to 5.4% from 5.5%, marking the lowest level since May 2008.

Does the Trend Matter More? It has been a touch-and-go start to the year for the U.S. economy; last week’s report showing a Q1 GDP reading barely in positive territory confirmed that. With April’s payrolls now factored in, job growth slowed to an average of 194,000 in the first four months of 2015 from a 260,000 monthly average in early 2014.

Wage Growth Still Slow. One of the more closely watched components of this report is wages. Friday’s release showed that the average wage of American workers rose by 3 cents, or 0.1%, to $24.87 an hour in April. The increase means wages in the past 12 months have risen at a 2.2% rate, a tick below the post-recession high of 2.3% last achieved in mid-2013, according to Market Watch. Year-over-year increases remain in a tight range of 1.9% to 2.2% since 2012. Some Federal Reserve members, who will contemplate interest-rate policy next month and again in September, say low-running inflation is delaying rate hikes. Changes in wages can be a major indicator of eventual inflation, so keep an eye out for upcoming readings and the Fed’s response.

Good trading,
JJ
@TDAJJKinahan

NC
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