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U.S. Jobs Recovery Is Losing Steam. So Will the Stock Market Rally

Last Updated September 23, 2020 2:10 PM
Stephanie Bedard-Chateauneuf
Last Updated September 23, 2020 2:10 PM
  • U.S. private employers added 167,000 jobs in July, sharply missing expectations.
  • Job growth is slowing as businesses are reversing their reopening plana due to rising virus cases.
  • The stock market rally will run out of steam as the recovery takes longer than expected.

The U.S. stock market continues its rally despite disappointing job numbers.

dow, djia
The Dow keeps rising despite disappointing job reports – for now. | Source: Yahoo Finance 

U.S. Job Growth Is Showing Signs of Slowing

After sharp rebounds in May and June, the U.S. labor market showed signs of slowing in July.

According to the ADP National Employment report , private-sector employment increased by only 167,000 from June to July. This total was well below Wall Street’s estimate of 1 million and represented a drop from the 4.314 million jobs created in June.

Video: U.S. Private Payrolls Missed Expectations in July

Ahu Yildirmaz, vice president and co-head of the ADP Research Institute, said: 

The labor market recovery slowed in the month of July. We have seen the slowdown impact businesses across all sizes and sectors.

All jobs except 1,000 were in the service sector. The slowdown is attributable to the leisure and hospitality sector, which created 38,000 jobs against nearly 2 million in June.

The June total was revised significantly higher than the roughly 2.4 million in the original estimate. That month, combined with May’s 3.34 million increase, still leaves the job market well short of the 19.7 million jobs lost in March and April.

us labor market
Only 167,000 jobs were added in the private sector in July. Unlike stocks, the job market is far from recovering the damage of March and April. | Source: ADP Research Institute 

ADP data are a good indicator of what to expect in the more closely watched jobs report from the Labor Department.

On Tuesday, President Trump hinted that the government would release a strong employment report  at the end of the week. That number might not be as significant as Trump hopes, though.

Dow Jones expects nonfarm payrolls to grow 1.48 million  after last month’s record 4.8 million.

Some economists expressed skepticism about this forecast and said the economy might have lost jobs in July.

Goldman Sachs said its indicators show a drop of 1 million jobs  and a higher unemployment rate.

The rise in virus cases has prompted states to scale back their reopening strategies, stalling the labor market’s gradual recovery.

According to a Cornell survey released Tuesday,  31% of laid-off workers who were able to return to their previous jobs were laid off again.

If the virus outbreak continues to escalate, forcing more businesses to shut down again, the consequences could be dire. The number of Americans claiming unemployment benefits has increased in the past two consecutive weeks.

John Leer, Morning Consult’s chief economist, said :

It is also important to emphasize that layoffs have not stopped. As the virus spreads and employers shrink their workforces, more Americans will become unemployed.

Lasting Damages to the Economy Will Halt Equities Rally

Stock investors have paid little attention so far to signs of a weakening recovery. As the rebound is running out of steam, so will the stock market rally. Gold hitting record highs is a signal that investors are concerned about the economy.

Yelena Shulyatyeva of Bloomberg Economics said: 

My concern is what will happen going forward into the end of the year, into 2021. Will there be enough jobs to create enough personal income so that it can support personal spending growth?

There will likely be not enough jobs to support economic growth.

The main driver of the stock market rally is vaccine hopes. The reality is that a vaccine won’t be a silver bullet , as the virus could be with us for decades.

Video: U.S. Economy Faces Long Road to Recovery

Strategist David Hunter predicts the stock market could crash by 80% once investors realize the long-term economic damage caused by the pandemic. The stock market won’t stay disconnected from the economy forever. The bubble will pop sooner or later.

Disclaimer: This article represents the author’s opinion and should not be considered investment or trading advice from CCN.com. Unless otherwise noted, the author holds no investment position in the above-mentioned securities.