Dow Futures Climb Despite Glaring Unemployment Red Alarm

Journalist:
Ben Brown
September 24, 2019

Dow Jones Industrial Average (DJIA) futures jumped 80 points in early trading Tuesday after Treasury Secretary Steven Mnuchin confirmed China trade talks were scheduled for early October. But the news overshadowed what could be a canary in the coal mine: declining US service sector jobs.

In a large data dump on Monday, jobs in the US service industry fell for the first time in a decade. The data will likely put a dent in the forthcoming non-farm payroll numbers which, in turn, could fast-forward Federal Reserve easing.

Dow futures point to strong stock market open

Dow Jones Industrial Average (DJIA) futures were 80 points higher on Tuesday, following a strong Asian session.

Dow Jones Industrial Average (DJIA) futures ticked higher despite US service industry employment falling for the first time in ten years. Source: Yahoo Finance

S&P 500 futures also crept 30% higher while the tech-heavy Nasdaq Composite futures pushed 0.37% higher.

US service jobs: first decline in a decade

The US service sector accounts for 80% of all American jobs, so a decline should make investors nervous. The IHS Markit services purchase managers’ index (PMI) for employment, which tracks job growth, fell below 50 for the first time since December 2009. A figure below 50 indicates contraction.

“The survey indicates that businesses continue to struggle against the headwinds of trade worries and elevated uncertainty about the outlook. Firms have become more risk averse and increasingly eager to cut costs,” – IHS Markit chief Chris Williamson

It’s not an immediate concern, especially considering broader barometers of manufacturing and service sector health were strong. But it’s definitely a note of caution.

Why jobs matter for the Dow

The Federal Reserve’s number one mandate is to “promote maximum employment, which means all Americans that want to work are gainfully employed.”

The Fed watches employment numbers very closely to inform its interest rate decisions and broader monetary policy. If employment falls, the Fed may be incentivized to speed up its rate cut cycle. And that’s yet another prop for the Dow Jones and wider stock market.

Indeed, traders may be betting that weak jobs data will fast-forward the Fed’s stimulus plans, hence the stock market boost today.

This article was edited by Samburaj Das.

Tags: Dow Jones
Ben Brown

Ben is a journalist with a decade of experience covering financial markets. Based in London, UK, his writing has appeared in The Huffington Post and he was Chief Editor at Block Explorer, the world's longest-running source of Blockchain data. Reach him at benjamin-brown.uk or on Twitter at _Ben_Brown. Email ben @ benjamin-brown.uk.