More Choppiness Ahead? – Weekly Market Outlook

Technically speaking, the market made gains last week.  What the bottom-line number doesn’t indicate, however, is how much of a struggle it was to even manage that modest advance.  In fact, it looked like the bulls were out of gas by mid-day Friday, and were yielding to the bears again.

Was that just a pre-weekend lull, and will the buyers come back to the table – hungry – this week and finally get the market past a major hurdle?  Or, was Friday’s pullback an omen of yet another pullback on the way?  We’ll weigh the odds right after we slice and dice last week’s major economic numbers. 

Economic Calendar

While last week’s economic-data dance card was pretty full, there’s no doubt as to the focal point for the week…. April’s employment/unemployment data, which came out on Friday.

We should have known a good-sized jump job creation was a possibility following the strong growth figure from payroll processor ADP on Wednesday.  ADP reported new 220,000 positions were added last month, up from March’s 209,000 and better than the estimated 215,000 new payrolls.  But, the ADP number didn’t even come close to describing the degree of the increase we got in the official jobs-growth number from the government.  The Department of Labor said we added 288,000 new payrolls last month, topping March’s increase of 203,000, and trouncing estimates for an increase of 210,000.

Given that strong improvement, it’s no surprise that the unemployment rate measurably fell, from 6.6% to 6.3%.  Yet, even with 288,000 new payrolls added in April, a 30 basis point plunge in the unemployment rate is big… to the point of being odd.  How’d we muster such a leap?

Well, as it turns out, the big dip in the unemployment rate was more the result of fortuitous math than it was actual progress.  Last month, a little more than 800,000 people were removed from the labor force (voluntarily or not).  The portion of people in the labor force that don’t have jobs – aka “the unemployed” – fell a similar 733,000… but not necessarily because they found jobs.  Indeed, most of them did NOT find jobs; they may have simply seen their unemployment benefits expire but have also given up on trying to find a job.  Either way, while the unemployment rate fell sharply, actual employment did NOT improve.  The number of people who have jobs actually fell (on a seasonally adjusted basis) in April.