Stock market shrugs at blow-out jobs report

Why it's an encouraging sign that Wall Street isn't as excited as it used to be about good news for workers


Andrew Leonard
January 6, 2011 4:50AM (UTC)

Every month, a company called ADP Employer Services releases its estimate of private sector job creation exactly two days before the Bureau of Labor Statics issues its own stab at tallying both public and private new jobs. The ADP numbers don't always correspond well to the government's. in November, for example, ADP reported a relatively big gain of 97,000 new jobs that got labor market observers prematurely excited, but  two days later hopes for a blowout BLS number were dashed by the release of a much-lower-than expected 39,000 figure.

But even with that in mind, one cannot help but be amazed at the numbers reported today by ADP. According to the payroll processor, private companies added 297,000 jobs in December -- far exceeding the consensus analyst estimate of 100,000. We'll wait to see what Friday's government report has to say, but once again, hopes are rising.

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U.S. stocks, however, didn't surge as much as one might expect upon receipt of this latest affirmation of economic recovery. In fact, the Dow Jones Industrial Average initially fell. Sure, there might be good reasons for a guarded skepticism about the numbers but there's also another potential explanation.

Even though the minutes of the last Federal Reserve meeting released yesterday indicated that recent signs of growth are not enough to encourage the Fed to call an end to its plan to keep injecting liquidity into the economy, some investors might be interpreting the latest labor market developments as exactly the kind of economic news that would bring a halt to the program. The Fed will move swiftly to tighten up the money supply if it thinks unemployment is falling significantly. In other words, what's good for the real economy could be bad for the Wall Street, because it will reduce the amount of money sloshing around the system and inflating asset prices.

I am actually heartened by this news. It reminds me of the gogo days of the late '90s, when every blow-out labor report would be greeted by sharp drops in stock market indexes, because traders were convinced the news would drive an inflation-wary Federal Reserve to raise interest rates.

Sure, it is infuriating that good news for workers is seen as a sign to sell by Wall Street, but in the current scenario, this is a marked improvement. A few months ago, a strong labor report got investors excited because it signaled that we might escape a double-dip recession. Now they seem to be reverting to a more familiar stance -- in which any sign of monetary tightening is bad news for their bottom lines. Yay!


Andrew Leonard

Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21.

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