- The US reported an increase of only 266,00 jobs in April, on top of downward revisions.
- Concerns of overheating seem overblown, or at least that the economy is adapting.
- The Federal Reserve is set to keep low rates for longer, hurting the dollar but being a boon for stocks.
Are seasonal adjustments responsible for the poor number? That is one explanation used to explain the bitter disappointment in April's Nonfarm Payrolls – an increase of only 266,000 jobs instead of nearly one million expected. Moreover, this meager rise comes on top of a substantial downside revision for March, 770,000 instead of 916,000 originally reported.
Even if the pandemic skewed seasonal adjustments, the picture is still far gloomier than earlier estimated. If the economy was overheating, the shortage in some raw materials and skill mismatches – vacancies are high but those out of work are not a good fit – may explain the slow hiring. Another explanation would be that America is not accelerating as fast as expected.
What does it mean for markets?
Contrary to reports which send mixed messages, the moves are crystal clear. The Federal Reserve is vindicated in its assessment that the economy still has a long way to go. Its other mantra, that "inflation is transitory" is also validated as fewer people in work mean less expenditure and weaker prices pressures.
The chances of the Fed tapering down its bond-buying scheme have substantially dropped, and the timing for a rate hike has already been pushed back. Bond markets now foresee it as coming only in mid-2023. The is a considerable shift from predicting an increase in borrowing costs already next year – and closer to the Fed's 2024 projection.
The theory of overheating seems relevant only for stocks – valuations may be high, but look more logical when safer bets provide meager returns.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.