Tags: Jobs | markets | fed | reaction

Jobs Data’s Black Magic: How Will Markets React?

Friday, 06 April 2012 10:20 AM

The March jobs number came in low — very low, adding just 120,000 after several months of nearly double that pace and well below the Wall Street guesstimate of more than 200,000.

Blame the warm winter, goes the argument, for shifting hiring earlier than usual. It’s simply payback time.

Yet the headline unemployment rate fell by a 0.1 percent to 8.2 percent.

Editor's Note: You Owe It to Yourself to Know What Obama and Bernanke Are Hiding From Americans

What’s happening here? Perhaps more importantly, will bad news turn out to be good for stocks and other assets?

The S&P 500 has put on nearly 12 percent since the year began, falling below 1,400 only in the past few days. (Markets are closed for Good Friday and bonds trade in an abbreviated session. Bond yields fell soon after the employment news.)

The answer to the first question is that, however you count it, fewer people are looking for jobs.

If you’re Dean Maki, chief U.S. economist at Barclays Capital, things are simple: The baby boomers are quitting work, either by choice or necessity, reducing the total work force. Thus we need fewer jobs to improve the headline figure.

Indeed, the “participation rate” fell in March to a seasonally adjusted 63.8 percent, from 63.9 percent in February.

“One of our strong views is that the unemployment rate is going to fall faster than people expect,” Maki told CNBC on Thursday, before the report.

“We believe the bulk of the decline in the participation rate, about two-thirds of it, is the baby boomers retiring. That means we’re not going to see the surge in the participation rate that many people are expecting.”

Maki nailed the top-line number, by the way, predicting 8.2 percent.

Of course, nothing has changed for most people: 12.7 million remain unemployed, according to the Bureau of Labor Statistics.

Of those, the long-term unemployed total 5.3 million, and an additional 2.4 million are “marginally attached,” meaning they are available to work but have given up looking and thus aren’t counted as unemployed.

Without more of them working and earning a steady paycheck, the recovery may be on hold. Consumer spending is a big part of GDP growth.

The answer to the second question is, a lot depends on Ben Bernanke. The U.S. Federal Reserve Chairman has been reticent in recent days to even hint of additional easing. He did caution, however, that the job market might easily head south, a hint that easing wasn’t totally out of the picture.

Judging from the most recent Fed minutes, however, traders seem resigned to the idea that support for more easy money is fading. That could end the stock rally, if it hasn’t already.

Turning off the dollar spigot has hurt gold, too. It’s down 5.3 percent over the past 30 days and is slightly negative over six months.

“Even though Fed officials remain cautious about the economic outlook, there is little, if any, support for any new (bond-buying) program,” Paul Ashworth, chief U.S. economist at Capital Economics, told clients in a note.

At least one major market commentator, however, believes another round of easing is guaranteed. “Without QE, the financial markets and then the economy will falter,” said Bill Gross, founder of bond giant Pimco, via Twitter.

Editor's Note: You Owe It to Yourself to Know What Obama and Bernanke Are Hiding From Americans

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Friday, 06 April 2012 10:20 AM
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