Job market will set tone for September
August 29, 2009 by admin
This week will be a pivotal week for the economy and market for the balance of 2009. Thursday the market will digest another non farm payroll report, following improved figures from the month of July, economists and investors alike will be cautiously awaiting the new data. The market is anticipating job losses to exceed two hundred and fifty thousand jobs for the month, with the national unemployment rate to be at 9.4%.
The month of August jobs report helped to set the tone for a strong rally in the equity markets. For the month of August, the market lost about two hundred and forty seven thousand jobs, much lower than many experts were predicting. The national unemployment rate also dropped to 9.3%, for the first time in the last six months, the unemployment rate improved slightly.
The labor markets will likely be a lagging indicator for the state of the economy. Most experts believe that the job market is likely three to six months behind the balance of the economy when pulling out of a recession. This past week, Ben Bernanke was nominated for a second term as Chairman of the Federal Reserve. Following the data over the last three months, many economists are now optimistic that the worst of the recession is over and the market is improving as highlighted by a report out of the Federal Reserve this week.
August marked the fourth month in a row with improving figures in the housing market. The housing market is critical to the economy and was a catalyst in pushing the economy into a recession. Historic low mortgage rates, combined with the tax rebates have proven to be the right ingredients to help bring new buyers back into the market. The mortgage market has been relatively immune to the changes in the equity markets, as rates have held at or below five and a half percent for almost the entire year. The government was very determined to try to and provide life support to the housing market, and their efforts have been rewarded.
Improved numbers in existing and new home sales are likely to be a key contributor in the most important factor with any economy, confidence. Consumer and business confidence is always the most important driver of any capitalist economy. Confidence in job stability, the real estate market and equity markets will drive spending. Individual spending makes up seventy percent of the gross domestic product. Consumers have now seen the stock market rally over three thousand points since march, up over thirty percent, home sales reports improve for the past three months and improved figures in the labor market. These reports could propel additional spending and provide confidence for corporations to begin hiring.
The dramatic surge by the stock market since early March could leave the equity markets in a vulnerable stage should the numbers on Thursday be disappointing. Expect investors to pull back and lock in profits if the job market report misses the mark. If job losses are higher than anticipated, long term mortgage rates could be heading even lower and could retest the five percent level, a mark that was flirted with earlier in the year. Traditionally, September is a challenging month for the equity markets, all signs are pointing towards long term rates holding relatively stable until the month of October.