Weaker Than Expected Jobs Data May Signal Inflation Easing

Key Takeaways

• Weaker Than Expected Jobs Numbers
• Interest Rates Falling
• Gold Making New Highs

Markets are off to a quiet start in April. That could be because it’s a holiday shortened week. It could be people are out because many schools are on break. Or it could be that markets are waiting for a signal as to what comes next on the inflation front. Perhaps this morning’s ADP report offers some insight on that.

Today’s ADP report came in weaker than expected. The report, which is based on payroll data, was expected to show an increase of 200K jobs. However, that number came in much weaker than expected at 145K. It’s the second time this week we’ve seen data suggesting a cooling in the jobs market.

On Tuesday, the Bureau of Labor Statistics released the latest number of job openings (JOLTs). That report came in at a little over 9.9 million openings, well below estimates and the first time since May of 2021 that number has fallen below 10 million. At the same time, February’s report was revised downward. The JOLTs and ADP numbers make this week’s Employment Situation report that much more interesting. However, since markets will be closed Friday when the report is released, today’s ADP jobs report may take on more significance than usual.

We’ve seen some large scale job cuts in the past nine months. FedEx
FDX
will provide greater detail today about cost cutting measures which includes a 10% reduction in officer and director roles. Walmart
WMT
is planning layoffs of more than 2,000 workers at fulfillment centers as the company shifts to a more automated process. Meanwhile, General Motors
GM
announced that 5,000 white collar workers are opting for early buyouts.

One of the more interesting aspects of the jobs situation is that we do still see a lot of companies hiring despite these large scale layoffs. That could be causing a bit of a conundrum as markets are trying to understand what types of jobs are being cut relative to what jobs are being made available. Understanding that could lead to a better understanding of the inflationary picture.

Speaking of inflation, we’ve seen a pullback in interest rates. After breaking 4% in March, yields on the benchmark 10 year note are down to 3.30%. 2 year notes, which had broken above 5% last month are also down at 3.75%. However, we’ve seen a recent rise in oil prices and subsequent increases in prices of gasoline. According to AAA, the average price for a gallon of gas is currently $3.53, up from $3.40 a month ago. That could explain why, despite a pullback in interest rates, we’re seeing gold make a new high for the year.

Fears over inflation were pushed aside last month in the wake of the banking crisis. Although it appears for now that worst of that is behind us, attention will likely turn back to inflation and the Federal Reserve’s May meeting. Following today’s ADP report, there is a better than 60% chance the Fed will leave rates alone next month and about a 40% chance rates will increase a quarter point. I’ll be watching to see if those numbers changes following Friday’s jobs number.

With Passover beginning tonight and Friday being Good Friday, I expect volume to become even lighter than it has been this week. Keep in mind though, when things get quiet, an otherwise uneventful headline has potential to move markets not unlike how an unexpected phone call on a quiet day might make you jump. As always, I would stick with your trading plan and long term objectives.

tastytrade, Inc. commentary for educational purposes only.