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Strong Jobs Report Could Spell Trouble for Markets

By Brad McMillan Market OverviewApr 06, 2023 01:33PM ET
www.investing.com/analysis/strong-jobs-report-could-spell-trouble-for-markets-200636996
Strong Jobs Report Could Spell Trouble for Markets
By Brad McMillan   |  Apr 06, 2023 01:33PM ET
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There is a lot riding on the monthly jobs report, which comes out tomorrow. For the economy, more jobs are good: more workers, more wage income, more spending ability, and so forth. There’s no real downside. For financial markets, however, a strong report would be problematic.

Those workers—earning and spending their wages—add to demand, which adds to inflation. So, a strong report would be bad news for the Fed, for interest rates, and for markets. This is the problem we face tomorrow.

How Bad Could It Be?

This report is particularly problematic because after a very strong jobs report two months ago and a very strong one last month, fears are rising that this report will signal the start of a significant drop. Other labor market data—the number of open jobs and layoffs in particular—has shown a significant weakening, as did the ADP job creation numbers. The real question, based on the data so far, is not whether this report will be weaker but, instead, just how bad it will be.

That said, expectations are that it will not be that bad. Economists as a group anticipate job growth of around 200,000. This result would be in line with levels before the last two months and would signal continued reasonable growth rates. So far, that number looks within reason and is consistent with the slowdown (but still overall strong numbers) we have seen in other recent data.

Continued Economic Growth Ahead?

If we do get the expected 200,000, or really anything between say 180,000 and 240,000, this would be a return to the prior trend and would signal that job growth continues to be strong enough to keep the economy growing without, hopefully, keeping inflation as high as it has been. There is precedent for this, as we saw a similar spike in July 2022, only to see job growth drop back the following month. That result would be perceived as a positive by the Fed and markets, suggesting that inflation may start moderating again, but is still high enough to allow for continued economic growth.

Based on the data so far, I think that is what will happen. Signs of slowing outnumber signs of strength, making the chance that last month was a fluke likely. At the same time, labor demand remains strong, which suggests a significant drop is also unlikely. A return to the previous trend makes the most sense.

Beyond the jobs number, we will also want to look at other underlying stats. Wage growth, for example, feeds directly into inflation and has been trending down since the middle of last year. Whether that trend continues will be a key data point on Friday. Similarly, the unemployment rate, which remains very low but has stabilized recently, is based on a survey of households and not businesses. It will provide a take on labor supply versus demand, and an uptick would signal more slowing.

The Big Picture

What I expect tomorrow is a slowdown after a couple of months of very strong performance, but a slowdown that leaves us with a growing economy. Job growth should come in around 200,000, wage growth should continue to moderate, and unemployment should tick back up a bit. If that happens, it will be good news, as it will mean the economy continues to grow but slowly. This is exactly what we need to either avoid or minimize the effects of a potential recession later this year.

Strong Jobs Report Could Spell Trouble for Markets
 

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Strong Jobs Report Could Spell Trouble for Markets

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Comments (10)
Dweeptaru Das
Dweeptaru Das Apr 08, 2023 1:06PM ET
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what trouble are u asking for?? on one hand markets are cautious towards onset of a mild recession and on the other markets will react to strong job data??? have u gone crazy or what???
Chart Harmonics
Chart Harmonics Apr 07, 2023 1:19AM ET
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Irrelevant. We’re close to the end of the rate hikes regardless of the number.
Scott Leckliter
Scott Leckliter Apr 07, 2023 1:19AM ET
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Nobody is arguing that, but we won't see cuts if jobs stay strong. Higher for longer.
Kris Jay
Kris Jay Apr 07, 2023 1:19AM ET
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and irrelevant that rate hikes are close to peak.  economy slowing, next few quarters will show lower earnings due to tight credit, tapped out consumer.  yet market shrugs off these future lower than 2020 earnings as unimportant data.
jason Trulso
jason Trulso Apr 06, 2023 11:11PM ET
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republicans and democrats will stall the debt ceiling raise causing the markets to drop, giving cover for the expected rate drops and Wallstreets miscalculations.
Scott Armel
Scott Armel Apr 06, 2023 8:36PM ET
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still people finally needing jobs as the free money supply dies up. sb another 300k jobs report.
Mhn Deol
Mhn Deol Apr 06, 2023 6:44PM ET
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It doesn’t really matter because markets are easily manipulated either way by the big funds and financial companies like JPM who recently said the market is going into a downturn but it didn’t happen. They can spin the story and the media will likely hype it up. Negative news makes a bigger impact by the way. Not the boring and calm stuff of averages and moderation which the Fed would like to see actually.
Me comment
Me comment Apr 06, 2023 4:19PM ET
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A strong or a weak jobs report tomorrow will have no impact on tomorrows market results.
Prakash Raja
Prakash Raja Apr 06, 2023 3:16PM ET
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weak jobs report, then recession fears and markets may fall. strong jobs report then inflation fears then too markets fall. either ways media suggests markets to fall
Ray Steed
Ray Steed Apr 06, 2023 3:16PM ET
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well said
Prakash Raja
Prakash Raja Apr 06, 2023 3:16PM ET
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yeah. if its strong jobs report at the expense of high interest rate and falling pce from 8 to 5 % and may be sub 5 % coming months, it would mean growth is good and inflation is easing well. so how would this be -ve for stocks ? or if its weak jobs report then that's factored already by 25 % fall in SP 500 last yr. either ways market can rally
Networld ITC
Networld ITC Apr 06, 2023 2:36PM ET
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In the US, companies can announce major restructuring and lay off hundreds if not thousands of employees within months, and many companies have. Meanwhile, in Europe mass layoffs announced by technology companies have stalled due to labor code provisions that make layoffs virtually impossible without prior consultation with workers' rights bodies. This situation leaves thousands of tech workers in limbo, who are unsure whether or not they will be affected by the negotiations, which could drag on indefinitely.
Wayne Galante
Wayne Galante Apr 06, 2023 2:36PM ET
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Maybe
Networld ITC
Networld ITC Apr 06, 2023 2:23PM ET
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we Europeans are also manipulators, but there is no such thing as you. America's population is suffering and being suffocated and you say that unemployment is decreasing. you really have a real problem with reality and life.
Lake Lot
Lake Lot Apr 06, 2023 2:23PM ET
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Yep
HeliumStar Max
HeliumStar Apr 06, 2023 1:54PM ET
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👍
Lake Lot
Lake Lot Apr 06, 2023 1:54PM ET
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😰🥖
 
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