Today’s disappointing Labor Department payroll report sent stock prices down sharply in the U.S. and Europe. For the second month in a row, the net number of new jobs created in the U.S. economy came in way short of Street expectations, and three days after a four-year high in the Dow, stock prices declined sharply as a result. Last week’s leader among the major U.S. stock market averages, NASDAQ was a big loser Friday (-2.3%) and for this week (-3.7%). Apple, NASDAQ’s biggest component, fell nearly 3% for the day and more than 6% for the week. The Dow fell 1.3% Friday, just about equal to its loss for the week, while the S&P 500 fell 1.6% on the day and 2.4% for the week. From their recent highs: Dow, -1.8%; S&P 500, -3.5%; NASDAQ, -5.3%.
Bond prices moved higher on Friday on the softer employment report. The 30-year Treasury bond was up nearly one point, its yield falling to 3.07%, its lowest level since the end of February. The 10-year T-note rose almost half a point to yield 1.88%, its lowest rate since Feb. 2. The Barclays U.S. bond market aggregate total return index settled at a record close Friday, where it was showing a 1.6% return for the year-to-date period. This compares to Y-T-D returns in the 7.6% (Dow) to 9.6% (S&P 500) to 13.9% (NASDAQ) range for equities.
115,000 workers were added to payrolls in April, the smallest increase in six months and well below Street forecasts for a gain of about 165,000. Private payrolls rose only 130,000, well below the 178,000 forecast and March’s 166,000 increase, while government sector jobs fell by another 15,000. On the positive side, the prior two months’ figures were both revised sharply higher, with March raised to 154,000 (from 120,000) and February increased to 259,000 (from 240,000) for a net gain of 53,000. That puts the average increase the past four months at a respectable 200,000 jobs a month, at the upper end of the range seen since the economic recovery began almost three years ago. The civilian unemployment rate fell to 8.1% from 8.2%, although this was due more to people giving up and leaving the workforce. Indeed, the size of the labor force fell by 342,000 while household employment fell by 169,000. The broader U-6 measure of unemployment – including individuals working part-time for economic reasons and other marginally attached to the labor force – stayed at March’s cycle low of 14.5% in April.
European markets had been modestly lower before this morning’s jobs figures were reported, but their losses widened immediately after the release. The DAX index fell 2% today, bringing its loss for the week to 3.5%. (The only day the German index didn’t fall this past week was on Tuesday, when the market was closed for the May Day holiday.) The Stoxx Europe 600 and the London-based FTSE 100 were both down 1.8% or more on Friday and more than 2% for the week. Today’s big winner in Europe was the German government bond market; the 30-year German bund jumped 8/10ths of a point in price, lowering its yield to another record low of 2.30%. On Sunday French voters are expected to dump President Nicolas Sarkozy in favor of Socialist Francois Hollande; indeed, the German government has already reached out to Hollande, according to press reports. French stocks lost nearly 2% on Friday and were down more than 3% for the week. Greece votes for a new Parliament on Sunday. The euro fell 0.5% on Friday to $1.308, its first time below $1.31 in three weeks.
Oil prices fell sharply on the jobs report as speculators worried that the weakening economy won’t be able to absorb the continuing buildup of inventories. Nymex crude fell $4, or about 4%, to less than $99 a barrel, the first time it had traded below $100 since early February. On Wednesday, the Energy Department said oil inventories rose 2.8 million barrels to 375.9 million, the highest level in 21 years.
Reports/dates/facts/links worth paying attention to over the next week:
- May 6: National elections in France and Greece.
- May 7: U.S. consumer credit for March.
- May 8: ICSC-Goldman latest week’s same store sales.
- May 9: Energy Information Administration weekly petroleum status report.
- May 10: Weekly unemployment claims.
- May 11: Producer price index for April; University of Michigan consumer sentiment for early May.
Copyright © 2012 by Wright Investors’ Service, Inc. The views expressed in this blog reflect those of Wright Investors’ Service, Inc. and are subject to change. Statements and opinions therein are based on sources of information believed to be accurate and reliable, but Wright Investors’ Service, Inc. makes no representations or guarantees as to the accuracy or completeness thereof. These views should not be relied upon as investment advice.