The U.S. stock markets closed lower on Friday, with the Dow Jones Industrial Average down 0.18 percent, the S&P 500 down 0.29 percent and the Nasdaq Composite Index 0.58 percent, respectively.
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U.S. inflation appears to be rising as the drag from cheap oil and a strong dollar fades, and a slowdown in first quarter economic growth looks to be temporary, with consumer spending and the housing market showing strength. He said it needs to be put in context of the still high level of hiring in the Job Openings and Labor Turnover Summary report and the fact that a number of Fed regions are reporting labor tightness.
With a June Federal Reserve interest rate hike likely off the table following Friday’s dismal jobs data, USA equity investors may shift their focus again to whether the economy is losing too much steam to allow stocks to advance.
The Fed is likely hesitant to raise interest rates in the fall, right before the presidential election in November.
The White House acknowledged the dismal figures but tried to downplay the significance, a spokesman saying data from just one month carry little significance. And Brainard pointed to additional risks, including possible market turmoil if Britain votes later this month to leave the European Union. The uncertainty over the referendum – three weeks away – has already caused sharp swings in the British pound, and investors are bracing themselves for volatility in the run-up to the vote. The index traded in a similar pattern throughout the week by opening lower and moving higher toward the market close.
But even if the so-called Brexit is rejected, key Fed officials have begun to question whether another hike is necessary soon. In a speech in London early Friday morning, Chicago Fed President Charles Evans said the USA recovery still faces substantial risks, including unexpected strength in the dollar and turbulence in financial markets that could force businesses and consumers to rein in their spending.
She added that she lacks confidence that inflation will return to the Fed’s 2% annual target over the medium-term. The central bank will also meet in July and September.
“Policy is much better positioned to counter unexpected strength than to address downside shocks”, Evans said.
But Yellen did not specify a date for a Fed move. The Fed “will postpone a nearby rate hike for sure – maybe they’ll be forced to look beyond the summer”. At the same time the jump in salaries, the drop in the unemployment rate, and the decline in manpower participation follow what policymakers have stated they anticipate as the labor market tightens up. As with previous months, the jobs added were centered in the low-wage service sector.
But economists cautioned not to overreact to a single bad jobs report – even the stunningly bad one released by the Labor Department on Friday.
The total was lowered by the Verizon workers’ strike, which depressed hiring in the telecom sector by 34,000. But the real culprit was simply a lack of desire among employers for new workers. In addition, the jobs numbers for the prior two months were revised down by 59,000, bringing the average for the last three months to just 116,000. Retail, a stalwart of growth, was flat.
Mining continued to shed jobs in May, losing another 10,200. Simultaneously, the Labor Department reported the number of people working part-time, but who would prefer to have full-time work, increased by 468,000 in May.
The week’s sales are considerably above the weekly average of $7.9 billion this year, according to preliminary Thomson Reuters data.
“In the words of a wise old economist, the numbers are what the numbers are”, said Richard Moody, chief economist at Regions Financial.
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“If it’s that companies saw something that gave them pause, we would have seen it in the JOLTS data”.
