The new report from the U.S. labor market is a story of disturbing trends. By the three-month average for payrolls, the economy has lost 8,000 jobs. Along with the private-sector job loss, the unemployment rate has increased to 4.6%, foreshadowing difficult times ahead for the economy. Only three sectors—construction, professional services, and health and education services—added jobs last month. That underscores the market’s tenuousness—the labor market is fragile. This report only served to weaken the dollar right away. A glimpse into how market participants responded to the lousy employment numbers.
Bond yields ticked down a bit, but they’re rebounding from their recent lows. At the same time, U.S. stock markets are in freefall and still deep in the red. Yet the SOTUS report paints a particularly shocking picture. These sectors, in particular health and education, have buoyed the payroll numbers and without that support, the payroll figures would be even grimmer. Investors are still sorting through these developments. But they’re probably most focused on Thursday’s Consumer Price Index (CPI) report, which is projected to show core inflation at 3% and headline inflation at 3.1%.
Labor Market Report Highlights
Yet today’s U.S. labor market report further highlights several deeply troubling trends that could lead to long-lasting and unnecessary costs—economic and otherwise. That leaves the three-month average payroll figure still down 8,000 jobs. This drop is an indication of a broader slowdown in hiring across most industries. Additionally, as unemployment rates tick up to 4.6%, the concern deepens for both job security and continued economic growth.
Last month, job creation tanked. Additionally, just three of the 11 sectors in the Non-Farm Payroll (NFP) report made positive contributions. The only other notable economic sector gains occurred in construction, professional services, and health and education services. These sectors seem like the only bright spots in an otherwise bleak employment picture. Given stagnation in the other sectors, this points to some strong economic headwinds going forward.
Investors responded almost immediately to these numbers by sending the dollar lower as trading floor confidence started to erode. Investors are paying attention to economic indicators. Their observations can result in instantaneous market reactions, with the notable exception of their future guidance on changes to monetary policy.
Market Reactions and Trends
The 10-year Treasury yield fell after the mixed labor market report. Yet, they have since risen again from those lows, indicating a change in investor sentiment. The bond market is clearly in an overreaction mode. Despite an overall pessimism regarding the state of the labor market, some investors continue to place bets on potential interest rate cuts from the Federal Reserve down the line.
U.S. stock markets resumed their dismal streak, closing down after the report’s release. This continuing drop is an indication that investors are worried about the economic landscape. Perhaps most significantly, they are recalibrating their investment strategies in light of the new data. In the absence of sustainable, strong payroll growth, prices in the stock market could face greater volatility. Investors are understandably looking for clarity on where the economy—and with it, monetary policy—is headed.
Despite a slightly stronger NFP number than expected, this has not led to a significant shift in market-based expectations regarding monetary policy. Analysts note that rates futures market expectations for two or three Fed cuts by 2026 remain intact. This points to a significant degree of investor skepticism about the Fed’s ability to respond rapidly to emerging economic crises.
Oil Market Developments
It is against this backdrop of rapidly changing economic opportunity and calamity that oil prices collapse. At least today WTI and Brent crude oil are in sync dropping by over 2.5%. Brent crude now hovers under $60 per barrel. If it remains above this level for the rest of the trading day, that will have bearish implications for later West Texas Intermediate crude oil prices.
As market analysts have been warning, if oil prices go lower than $60, it’s the crown jewels that will suffer first. That fear has been rekindled with the buildup of expectations for an oil market surplus. As we see in recent news from across the pond in Europe, it’s far too easy for progress that is already made to be undone. This positive perception is overshadowed as listeners focus on signs that supply is exceeding demand in the Gulf and the U.S.
Oil prices all are up and down every minute with news developing all the time. All market participants are remaining watchful for the first harbingers of a change in demand dynamics, or production levels. Given these factors, the overall outlook for oil prices remains tenuous as geopolitical and market fundamentals remain in flux.