Job creation remains tepid at best, as evidenced by ADP’s report showing only 42,000 private-sector jobs were added in July. But that may be the best news for investors, right now.
A surprisingly strong monthly jobs report on Friday might bring about calls that the economy’s recovering better than most expected. Optimists will seize on this and say the Fed should start thinking about tightening rather than loosening monetary policy, not exactly the best medicine for the stock market. On the flip side, an extremely weak jobs report will bring all the double-dip callers back to center stage, which also isn’t good for stocks.
But a July jobs report that’s not too good, but not too bad, may be the best medicine for the stock market, which remains flat year-to date, as the current trading environment of record corporate profits and near-zero interest rates would stay intact for the foreseeable future.
It’s easy to glean evidence from this morning’s ADP report to estimate what Friday’s jobs data will look like. Unfortunately, there’s not much to be positive about. From Dow Jones’ Kathleen Madigan (subscription required):
Weak labor markets remain an obstacle to a recovery. Private payroll gains increased by only 42,000 in July, as large businesses added no new workers, according to data released Wednesday.
July’s private-sector job gain was the sixth consecutive increase, according to a national employment report published by payroll giant Automatic Data Processing Inc. (ADP) and consultancy Macroeconomic Advisers. But the pace of hiring has averaged only 37,000 during those six months.
“Firings have stopped but strong hiring is not yet happening,” said Joel Prakken, chairman of Macroeconomic Advisers, which compiles the survey for ADP. “There is no sign of acceleration [in hiring].”
Where we go from here is a big mystery. But if the jobless claims throughout the last year or so are any indication, the labor market’s likely to linger around limited growth for the time being.
“It’s easy to think that more of the same is on tap for the foreseeable future,” James Picerno writes at The Capital Spectator, which means the jobs market is still vulnerable to a significant setback.
For Friday’s jobs report, economists are expecting 100,000 private-sector jobs added. “That’s better, but not enough to blow fears of the new normal,” Picerno says. “Of course, the possibility for a positive surprise of some magnitude keeps the bulls bubbling.
“Technically, the labor market is improving. But the margin of safety between growth and contraction is still uncomfortably thin.”