The Dow bounced back from its Halloween haunting on Friday after a stunning jobs report distracted from foreboding economic data.
Wall Street’s three major indices rose in unison. The Dow Jones Industrial Average surged 250.38 points or 0.93% to 27,296.61, more than erasing its Oct. 31 losses.
The S&P 500 jumped 24.24 points or 0.8%. Now trading at 3,061.66, the large-cap index has the potential to close at yet another record high.
The Nasdaq recorded a similar bounce, adding 73.66 points or 0.89% to achieve a new all-time high at 8,366.22.
A surprisingly-strong jobs report emboldened Dow bulls, who had already prepared to shrug off any dismal statistics as outliers caused by the prolonged General Motors strike.
However, those excuses turned out not to be necessary, because nonfarm payrolls jumped by 128,000 anyway, easily smashing the Dow Jones economist estimate of 75,000.
Even better, August and September payrolls data were both revised upward, resulting in a net addition of 95,000 more jobs. The economy is now creating an average of 167,000 jobs per month, down from 223,000 in 2018.
In isolation, Friday’s jobs report would be expected to fortify economic forecasts against recession warnings. However, the manufacturing sector is already in a recession , and the apparent breakdown in trade war optimism suggests that the gloomy picture won’t change anytime soon.
This morning, the ISM Manufacturing PMI report revealed that factory activity had contracted for a third straight month. PMI came in at 48.3, slightly below the 49.0 economists had expected. Readings below 50 indicate contraction.
Survey participants expressed concern about weak demand. As one respondent told ISM,
“Customer demand is down, and we are expecting a very soft fourth quarter, without much relief in sight for Q1. Suppliers report the continued rise in labor costs, which are ultimately reflected in the rising product costs.”
The poor data weren’t entirely surprising. On Thursday, Chicago PMI – a key measure of regional business sentiment – plunged to a nearly four year low of 43.2 , missing economist estimates by a wide margin. Chicago PMI is more volatile than the broader ISM Manufacturing report, but it’s difficult to disregard a print of 43.2.
To be sure, manufacturing comprises a much leaner slice of the US economy than in the sector’s glory days. A recent Bloomberg report found that, contrary to President Trump’s promise to make American manufacturing great again, US factory output’s contribution to GDP floundered at 11% in the second quarter – its lowest point in 72 years.
Notably, today’s non-farms payrolls report revealed that the manufacturing sector had lost 36,000 jobs, though that figure was intensified by the GM strike.
Ironically, the industry’s decline is a silver lining for the economy’s overall picture, given that PMI printed readings below 50 in each of the past three months – underperforming economist forecasts on all three occasions.
Solid consumer data figures continue to buttress GDP against the manufacturing slowdown. However, consumer data tends to lag business indicators, and – strong job creation notwithstanding – business investment has begun to decline .