Weak U.S. Jobs, Payrolls Drive Sharp Stock Losses

Equity markets struggled Monday amidst two reports pointing to a sluggish and weakening job market in America.  U.S. nonfarm payrolls rose by just 151,000 versus expectations of 190,000 in January, according to a report by the Bureau of Labor Statistics (BLS). The weakness was broad based and was reflected in weak labor force participation, which remained little changed at 62.7%, according to data compiled by the BLS.

Equity markets struggled Monday amidst two reports pointing to a sluggish and weakening job market in America.  U.S. nonfarm payrolls rose by just 151,000 versus expectations of 190,000 in January, according to a report by the Bureau of Labor Statistics (BLS). The weakness was broad based and was reflected in weak labor force participation, which remained little changed at 62.7%, according to data compiled by the BLS.

The employment-population ratio, which is often seen as an important indicator of aggregate demand and inflation growth, remained weak at 59.6%. Both the labor participation rate and employment-population ratio remained far below their historic averages.

The total number of Americans actually working in the economy as a percentage of the total population has been at its weakest point in 40 years, as many Americans, especially younger workers, continue to be discouraged and remain outside of the workforce.

This discouraged workforce is not counted in the BLS’s official unemployment rate, which remained at 4.9% in January. The few job gains seen in the U.S. economy remained limited to lower quality, lower-paying jobs in the retail, food services, and drinking places sectors of the economy, according to the BLS. Some economists warn that a rising number of bartenders and wait staff will be insufficient to drag aggregate demand—and thus corporate revenues and profitability—higher.

Weak Inflation, Labor

This is also causing inflation expectations to drag lower, as the 10-year Treasury yield remains far below the 2% that it stayed mostly above since the global financial crisis in 2009 caused demand to fall. Inflation expectations are being downgraded at some investment banks, which are also recommending a pull away from equities and into U.S. Treasuries as a safe haven while a discouraged market continues to sell stocks.

On Monday, trading the U.S. Treasury stayed around 1.85%, far below its average in prior years. The weak expectations are also reflected in soft data about the job market. A study by the Federal Reserve saw the labor market weakening, with the Labor Market Conditions Index falling to 0.4, far below the 2.5 expected and the prior reading of 2.3.

Continued, protracted weakness in labor conditions has surprised many economists and the Federal Reserve itself, which confidently proclaimed a healthy and strengthening economy in December when it raised interest rates and the cost of borrowing for companies and consumers alike.

Equity Declines

The U.S. stock market remains far below its opening at the beginning of 2016 and was joined by weakness in Europe, where markets in London, Paris, and Frankfurt saw more than 2% declines throughout the day.

The S&P 500 has fallen by about 14% from its 52-week high, and further losses could translate into an official bear market. Traders typically define a bear market as one that has fallen by 20% or more from its peak.