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Wall Street Muscles Through After Fizzling Jobs Surprises Analysts

The country realized only a quarter of the 1 million expected job gains, but Friday's disappointing employment report didn’t put much of a dent in investors’ performance.

MANHATTAN (CN) — A hugely disappointing jobs report left investors nonplussed but still able to climb back into positive territory for the week.

Many experts had predicted the payroll report would show 1 million non-farm jobs were gained in April. Come Friday, however, the Bureau of Labor Statistics put the final number at an increase of only 266,000 jobs, with the unemployment rate inching up a bit to 6.1%.

The most apt reaction to the news came from Ian Shepherdson, chief economist at Pantheon Macroeconomics, who merely tweeted "Oh.”

Just after the report was released, the Dow Jones Industrial Average, S&P 500 and Nasdaq each took a slight hit, but by the closing bell all three indices had posted modest gains for the day. For the week, the Dow increased 902 points, while the S&P 500 gained 51 points. The Nasdaq, while a winner on Friday, lost 210 points for the week.

Across the board, analysts were downbeat on the jobs report, with Capital Economics senior U.S. economist Michael Pearce saying it “suggests the economy is carrying less positive momentum than we thought,” pointing to the 111,000-job drop in temporary help services and slight decrease in manufacturing employment.

“With most of the high-frequency indicators still pointing to further improvement and jobless claims falling like a stone in recent weeks, however, we doubt that it signals the recovery is at risk,” Pearce wrote in an investor’s note. “But it could indicate that labor shortages are becoming a significant drag.”

On Thursday, new unemployment claims again dropped, showing 498,000 initial claims for the week ending May 1, compared with 553,000 claims the prior week after an upward revision of 37,000. This is the third-straight week that unemployment claims were revised upward, though they are still dropping on the whole.

Earlier in the week, encouraging data from ADP showed 742,000 private-sector jobs were added in April, about 100,000 less than expected. The number of jobs gained in March was also revised, however, by 48,000. Small, midsized and large businesses all saw gains of more than 230,000 jobs each, and the service sector shone, contributing 636,000 of the added jobs. The April ADP report was the largest gain since last September, though a far.

“The labor market continues an upward trend of acceleration and growth, posting the strongest reading since September 2020,” ADP chief economist Nela Richardson said in a statement. The jobs report is still a far cry from the millions of jobs gained in May and June 2020. “While payrolls are still more than 8 million jobs short of pre-Covid-19 levels, job gains have totaled 1.3 million in the last two months after adding only about 1 million jobs over the course of the previous five months.”

The gulf should be closed, as some experts say ADP may be underestimating the number of jobs regained. Analysts at Capital Economics say ADP has undershot the official BLS numbers in all but one month in the last year, adding a likely strong rebound in public-sector employment as schools reopen and states are given fiscal aid could beef up overall employment.

Others say jobs are there for the taking. “While we certainly have more progress to make to recapture many of the lost jobs, we also know that there are 7.4 million job openings, the most since 2019, so we can argue that the issue now for the labor market is more a supply-side thing rather than demand,” said Peter Boockvar, chief investment advisor at Bleakley Advisory Services.

(Barbara Leonard photo/Courthouse News)

A survey earlier in the week by the National Federation of Independent Business showed about one out of five small businesses experienced a “significant staffing shortage” at the end of last month, while only 40% of owners said they had no staffing shortage.

The dispiriting BLS report also has validated, to a degree, the Federal Reserve’s staunch hesitancy to raise interest rates. Fed Chair Jerome Powell has repeatedly said he is “not even thinking about thinking about raising rates” until employment and inflation hit desired levels.  

That said, Treasury Secretary Janet Yellen, herself a Federal Reserve alumna, said during an interview earlier in the week before the jobs report was released that “it may be that interest rates will have to rise somewhat to make sure that our economy doesn’t overheat.”

With the lower jobs report, experts now believe the Fed will continue to hold the line on interest rates, even if Yellen or others call for a raise. On Friday, President Biden said the disappointing report shows that “the climb is steep, and we still have a long way to go,” noting also that it “puts some truth to some loose talk” that the economy is overheating.

Abroad, central banks and regulator are still relatively upbeat. Earlier in the week, the Bank of England left rates unchanged and kept its 895 billion-pound quantitative easing target in place, though it also slowed the weekly pace of its purchases.

Another fly in the ointment remains the virus itself. Cases in the United States have been dropping with this year's steady rollout of vaccines. The U.S. Center for Disease Control and Prevention reports about 150 million Americans have received at least one dose of a vaccine, while data compiled by Johns Hopkins University show 32 million cases of Covid-19 in the United States and 580,000 deaths.

America's recovery is at odds, however, with the experience in other parts of the world, most notably India, where cases starting to skyrocket about a month ago. For the third time in the last few weeks, India on Friday reported more than 400,000 new cases. The country has reported more than 21.5 million cases and 234,000 deaths, according to Johns Hopkins.

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