Market reaction to jobs report: Lousy

Updated: 9:30 p.m. ET, Sunday

Investors' immediate reaction to Friday's jobs report: It stank.

The jobs report showed only 120,000 payroll jobs were created, the lowest gain in five months. The consensus estimate was for 205,000 job creations. While the U.S. unemployment rate fell to 8.2%, the reason was a number of  workers had stopped looking for work. The number of people employed actually fell.

Futures trading late Sunday suggested the Dow Jones industrials ($INDU) will open down 140 points or so on Monday, with the Standard & Poor's 500 Index ($INX) down 18 points and the Nasdaq-100 Index ($NDX) down some 35 points. The Russell 2000 Index ($RUT) may drop as many as 14 points. The stock market was closed Friday for Good Friday.

Interest rates moved lower after the report's release, with the 10-year Treasury yield falling to 2.061% from Thursday's 2.175%. The U.S. bond market closed at noon on Friday.

The disappointment with the report raises the possibility that the Federal Reserve may move to add more stimulus to the economy. The Fed had signaled in minutes from its March 13 meeting that it was more inclined to wait before making any moves. The Fed is on record as saying it doesn't see raising interest rates before late 2014, although many economists believe it will move sooner.

Article continues below.Some of the report was payback for strong reports in January and February when a ridiculously warm winter in the Midwest and East cheered many consumers and retailers. Construction even showed some gains.

Weather in March was also warmer than usual, but the gains in January and February slowed.

Markets for the week
			4/6/2012			3/30/2012			% chg.			YTD chg.
Dow Industrials			13,060.14			13,212.04			-1.15%			6.90%
S&P 500			1,398.08			1,408.47			-0.74%			11.17%
Nasdaq			3,080.50			3,091.57			-0.36%			18.25%
Russell 2000			818.18			830.30			-1.46%			10.43%
Crude oil			$103.31			$103.02			0.28%			4.53%
(per barrel)
U.S. Dollar Index			80.09			79.14			1.20%			-0.54%
10-yr. Treasury			2.06%			2.22%			-6.99%			10.16%
Gold			$1,630.10			1,671.90			-2.50%			4.04%
Stock markets were closed Friday for Good Friday. Some futures and bond markets were open.

There were a few things to cheer about in the report. Manufacturing added some 37,000 jobs. Revisions to payrolls for January and February added a net 4,000 to the jobs picture. Average hourly earnings were up 0.2% from February. That translates into a 3.4% annualized rate.

Since nonfarm job losses bottomed in February 2010, with 8.8 million jobs lost, the economy has reclaimed 3.58 million, or 40.7%, of the 8.8 million jobs lost. Since private-sectors bottomed in January 2010, 4.05 million jobs or 45.7% of the 8.89 million jobs lost, have been recovered.

But then there were the negatives, including:

• Private-sector employment increased by 121,000. The consensus estimate had been 215,000. Payroll processor ADP had estimated on Wednesday that private-sector jobs had grown by 209,000. 
• Employment by temporary help services fell by 8,000. In a recovering economy, this category typically is growing ahead of permanent employment. This was the first decline since June 2011.
  
• Construction payrolls fell by 7,000.
• Retail jobs fell by 34,000.
• Household employment was off 31,000.
• The participation rate slipped from 63.9% to 63.8%.
• Average weekly hours slid to 34.5 from 34.6 in February.

An alternative measure of unemployment, which includes those looking for jobs, those working part-time when they want full-time work and those who have stopped looking for work, fell to 14.5% from 14.9% in February and 15.7% in March 2011. The drop may be due to the decline in the labor force.

What the report does not say -- and probably can't -- is the impact of higher oil and gasoline prices on the economy. Gasoline averaged $3.936 a gallon Friday, according to AAA's Daily Fuel Gauge report, unchanged from Thursday but up 20.2% for the year.

Is this the end of the world?

Maybe not. "Our read is that March is understating the underlying improvement in the labor market, while January and February overstated it," wrote Nigel Gault, chief U.S. economist of IHS Global Insight.

The University of Maryland's Peter Morici argued that the report points up a number of big issues in the economy, including trade imbalances with China and the need for more domestic energy production. He also believes the economy is hampered by what he called "burdensome regulation," healthcare costs and potential mandates.

But the report does undercut one of the driving forces in this year's stock market rally that has seen the Dow rise 6.9%, the S&P 500 gain 11.2% and the Nasdaq Composite Index jump 18.3%. The Nasdaq-100 is up 21.3%, much of that gain generated by Apple (AAPL), which is up 56.5%.

Economists and no less than Federal Reserve Chairman Ben Bernanke have said they expect job growth to moderate in 2012 as overall demand in the economy remains weak, gasoline prices rise and Europe slows.

Stocks overall fell this week, with Dow off 1.2% and the S&P 500 and Nasdaq off by smaller amounts. Only six of the 30 Dow stocks finished higher on the week, led by Merck (MRK) and Home Depot (HD).

The Nasdaq-100 Index ($NDX) finished up 0.3%, led by Bed Bath & Beyond (BBBY), up 9.2%, and Apple, up 5.7%. Despite those performances, only 34 stocks in the index finished with weekly gains. Only one stock in the Philadelphia Semiconductor Index -- Spreadtrum Communications (SPRD) -- finished higher for the week, but the gain was a tiny 0.06%.
 
That helps explain why an uneasy mood took over Wall Street this week. The fear: 2012 may prove to be a repeat of 2011, where the economy started out strongly. Then it was staggered by rising oil prices, the Japanese earthquake and, later, flooding in Thailand that disrupted supplies of key electronics used in a variety of industries and, of course, bitter political battles over government finances.