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Are Stock Markets Celebrating a Weaker US Jobs Report?

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Dec. 7 2018, Published 10:36 a.m. ET

Job additions come in below expectations

The US jobs report for November was released today. The job growth in the US slowed down as compared to last month and was underwhelming compared to analysts’ expectations. The job additions came in at 155,000 as compared to consensus expectations of 198,000. October’s non-farm payrolls (or NFP) were also revised down to 237,000 from 250,000 previously, while September’s NFP were revised higher by 1,000 to 119,000.

While job additions in manufacturing remained strong at 27,000, construction net adds declined to 5,000. Mining (XME), on the other hand, reported a job loss of 3,000. Healthcare (XLV) and professional services reported the highest job adds of 32,000.

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Unemployment rate

The unemployment rate remained steady at 3.7% in November. The labor force participation rate also remained at 62.9%. This unemployment rate is the lowest level in the last 49 years. The rate was in line with economists’ expectations.

The most closely watched piece of the jobs report, average hourly earnings, rose by 3.1% from the same period a year ago. While the annual growth was in line with analysts’ expectations, the sequential growth of 0.2% lagged analysts’ estimates of 0.3%. The wage growth situation was further worsened by the fact that the average workweek in November declined to 34.4 hours as compared to 34.5 hours in October. This artificially provided a slight boost to the average hourly earnings.

Fed and employment data

The weaker-than-expected November jobs report should support a dovish argument for the Fed’s rate hike path. Though the Fed might still go ahead with a 25-basis-point increase in December, it might have to rethink the pace of hikes (TLT) in 2019 if the employment situation and other reports warrant a slower pace going forward.

Market reaction

The markets opened higher today on the weaker-than-expected jobs report. While the report indicated a gradually cooling economy, investors seem to be relieved that this should provide fodder to the Fed to follow a less aggressive stance on interest rate hikes. The fears of rising rates due to rising inflation (TIP) along with US-China trade tensions has been one of the key reasons for the market sell-off in the last few days.

At 10:00 AM EST, the S&P 500 (SPY), the Dow Jones Industrial Average Index (DIA), and the NASDAQ Composite (QQQ) were trading up by 0.20%, 0.29%, and .02%, respectively. The SPDR Gold Shares (GLD) was also up 0.48%, as lower interest rates brighten gold’s investment appeal.

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