Disappointing Jobs report for the US? Not Really!

   Schwaben Blog

February 05, 2016

 

 

Weekly Statistics:

  Today Week Ago Year Ago
  05-Feb-16 29-Jan-16 05-Feb-15
       
S&P TSX 12,763 12,822 14,384
S&P 500 1,880 1,940 2,044
DJIA 16,205 16,466 17,780
OIL $31.00 $33.20  $68.86
USD vs CAD 0.7202 0.7112 0.8503
Gold $1,174 $1,121  $1,174

 

Another volatile week for US equities ended with S&P 500 losing more than 3% for the week. The disappointing jobs report released on Friday brought further negative momentum to already fragile markets. But a detailed look into that report brings out some positive takeaways. The jobless rate dropped to 4.9%, matching the Fed’s median forecast for the long-run sustainable level of unemployment or “full employment”, and continuing the most impressive trend in U.S. economic data. It is the first time since February 2008 that the unemployment rate has dropped below 5%.  The hourly wages also rose by 0.5% in January, the largest increase since January 2015 and beating market expectations by 0.3%. The gain in hourly wages will certainly help the US economy move closer to their inflation target of 2%.  The US economy is 70% consumption driven and with extra savings from lower oil prices, consumers will eventually put more money into the economy. So far we have not seen a substantial improvement in consumer spending but as Deutsche Bank recently said in its research report “Lower oil has an immediate impact on energy sector and the positive effects on the economy usually appear with a lag”. Another explanation for lower consumer spending could be that consumers are paying down their debts instead of spending. According to a Morgan Stanley report, consumer balance sheets are in great shape, with the lowest debt-to-disposable income ratio since 2003. As far as earnings recession goes, if we strip out the energy companies from the S&P 500, the blended earnings will improve from -3.8% to 2.2%. This shows that except the energy companies, the US corporations are doing well and are financially stable.

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