Stocks Rose Ahead of March Employment Numbers
Sources: Rates Data and Economic Calendar—Bloomberg Markets as of 4/06/15; Equity Market, Fixed Income and REIT returns from JP Morgan as of 4/02/15.
Stocks Rose Ahead of March Employment Numbers
U.S. equities finished broadly higher last week with mid and small cap stocks outpacing large caps. The S&P 500 index (large cap) returned 0.58%, the S&P 400 index (mid cap) returned 1.02% and the Russell 2000 index (small cap) returned 1.99%. On the international front, developed equity markets were mostly higher with the French CAC Index (+0.8%), the German DAX Index (+0.83%), and Japanese Nikkei Index (+0.77%) posting positive returns while the UK’s FTSE Index fell (-0.31%) during the holiday shortened trading week.
While markets were closed in the U.S. Friday, the Bureau of Labor Statistics (BLS) was open and, as usual, Wall Street was fixated on the monthly Employment Situation report that was released. The report was viewed as pessimistic by some as it showed that the U.S. added only 126,000 jobs during the month of March, the lowest reported number since December of 2013, while the jobless rate held steady at 5.5%. This caused the yield on the 10 Year U.S. Treasury to fall by 7 Basis Points on Friday to 1.85% on speculation of potential Fed policy.
While Friday’s release fell short of expectations, we are encouraged to see that the U6 unemployment rate (which encompasses part time and marginally attached workers) fell to 10.9% and the spread between the official unemployment rate (U3) and the U6 number fell to 5.4%. A lot of attention has been paid to how unemployment statistics are calculated and many feel that the U3 rate paints too optimistic of an employment picture. In order to incorporate persons employed but who are working below their skill level (think of an engineer working as a cashier) and those looking for a full time job but are only employed as a part time worker, you should consider the U6 rate. The U6 rate, by definition, should always be higher than the U3 rate and an important consideration is, “by how much?” On average, over the past twenty years, the difference between the U6 and U3 has been 4.7% – reaching a high of 7.3% in September and December of 2010. Today the spread is down to 5.4%, so while there are structural headwinds that may keep this rate elevated, it appears that there has been improvement in the quality of jobs workers are now finding.
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