An improvement in job quality?
Weekly market view from LMK Wealth Management
Markets rallied for the third week in a row, sending stocks to new all-time highs on the back of a strong May jobs report. For the week, the S&P 500 rose 1.34%, the Dow gained 1.24%, and the Nasdaq grew 1.86%.
Markets shot up on Friday after a better-than-expected jobs report showed slow and steady improvement in the labor market. Here are some high level takeaways: The economy gained 217,000 new jobs in May, many in business services and healthcare, indicating that the quality of available jobs may also be improving. Though headline unemployment is unchanged at 6.3%, digging deeper, we can see that the number of people who can’t find full-time jobs has fallen, as has the number who are forced to work part-time for lack of better options. This is great news for the labor market.
We also want to point out an important milestone reached last month: The economy has regained all of the jobs lost in the recession. The chart above shows that total nonfarm employment in the U.S. reached 138.5 million in May, up 8.8 million since the bottom of the recession in 2010.
While this is a noteworthy event, when we consider population growth and labor force growth, employment is still below healthy levels and the labor market still has a ways to go.
The European Central Bank voted to adopt aggressive measures to prop up Europe’s lagging economy. Though the ECB hasn’t quite reached Federal Reserve-style quantitative easing measures, it cut interest rates below zero, charging banks for holding money overnight. Economists hope the move will force banks to lend money out rather than pay to keep it on deposit, increasing the availability of credit to businesses and staving off deflation.
Reactions to the move were mixed, with some analysts applauding the move, while others worried about the possible effects on savers. Regardless of the outcome, it will likely take several quarters to see any effects of the new lower interest rates.
The week ahead is thin on economic data, but investors will be looking at Friday’s consumer sentiment report to see if Americans have regained their optimism after a weak showing in mid-May. Since consumer spending accounts for about two-thirds of economic growth, consumer attitudes play an important part in economic forecasts and short-term market movements. Retail sales will also be in focus on Thursday.
- Wednesday: EIA Petroleum Status Report, Treasury Budget
- Thursday: Jobless Claims, Retail Sales, Import and Export Prices, Business Inventories
- Friday: PPI-FD, Consumer Sentiment