Upside Surprise: What The Latest U.S. Jobs Report May Indicate

On the latest edition of Market Week in Review, Chief Investment Strategist Erik Ristuben and Head of AIS Business Solutions Sophie Antal Gilbert discussed the European Central Bank (ECB)’s expansion of its bond-purchasing program, the surprising U.S. jobs report for May and the latest movements in markets.

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ECB increases size of asset-purchase program

On June 4, ECB President Christine Lagarde announced that the central bank will increase the size of its Pandemic Emergency Purchase Program from €750 billion to €1.35 trillion—a €600 billion increase in government debt purchases, Ristuben stated. “Simply put, the ECB’s bond-buying program consists of an enormous amount of money, as the bank seeks to combat deflationary threats across the eurozone and take control of more countries’ yield curves,” he said.

The additional stimulus helped boost European equity markets the week of June 1, Ristuben noted, in addition to bond markets. Government bond yields fell significantly in countries such as Spain, Italy, Greece and Portugal on the back of the news, he said, as bond prices rallied. “Ultimately, the ECB’s announcement was a big and positive development for markets, as it further confirmed the bank’s no limits policy in regards to monetary support,” Ristuben remarked.

U.S. employment report better than feared

In what Ristuben characterized as a stunning surprise, the U.S. jobs report for May delivered much better news than expected, with 2.5 million nonfarm payroll additions and an unemployment rate that came in at 13.3%—still very high, but significantly lower than feared. “The consensus among economists was that May’s unemployment rate would be around 19%, with another 7 to 8 million jobs lost,” he noted.

So, why did the forecasts miss the mark? Ristuben said it’s been extraordinarily difficult to measure both the extent and permanence of the economic lockdowns wrought by the pandemic, in part due to the unprecedented levels of stimulus pumped into the U.S. economy in an attempt to mitigate the damage. “One of the main ideas behind the CARES Act and other government relief bills was that these measures would help keep small employers—particularly those in vulnerable industries—in business, and not result in permanent widespread job losses. Today’s U.S. employment report offers evidence that maybe this wasn’t such a naïve and ridiculous expectation after all,” he remarked.

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