Discouraging U.S. nonfarm payroll data dragged the benchmarks to sharp losses on Friday. This was the third straight time that the US labor market showed such dismal signs. The report comes during a week which has already witnessed a few weak economic readings. Eventually, except for the Nasdaq, the benchmarks ended the week on a losing note. Crude oil prices also moved lower and the energy sector suffered a great deal.
The Dow Jones Industrial Average (DJI) suffered a triple-digit loss as it slumped 124.20 points or 1% to close at 12,772.47. The Standard & Poor 500 (S&P 500) dropped 0.9% to finish Friday’s trading session at 1,354.68. The tech-laden Nasdaq Composite Index plunged 1.3% and was down 38.79 points to 2,937.33. The fear-gauge CBOE Volatility Index (VIX) slipped 2.3% and settled at 17.10. Volumes have been significantly low on most occasions through the week and Friday was no exception. Consolidated volumes on the New York Stock Exchange, the American Stock Exchange and Nasdaq, were roughly 4.96 billion shares, sharply lower than last year's daily average of 7.84 billion. Declining stocks on the NYSE outnumbered the advancers, as for 65% stocks that declined, only 31% stocks could move up.
All eyes on Friday were fixed on the nonfarm payroll employment data that was to be released by the U.S. Department of Labor. However, when the report came in, it once again reflected the sorry state of the labor market even after three years of the official end of the recession. According to the U.S. Bureau of Labor Statistics, nonfarm payroll employment increased by only 80,000 in June. This was far lower than consensus estimates of an addition of 90, 000 jobs. The latest figures added to the gloom since the U.S. labor market is suffering over the last three months. This was the third straight month that the economy added less than 100, 000 jobs.
Delving deeper into the report, the unemployment rate remained constant at 8.2% and the number of unemployed persons also was hardly unchanged at 12.7 million. Another major aspect that dented the mood was that the growth in employment had significantly slowed down in the second quarter as against the first three months. The report noted: “In the second quarter, employment growth averaged 75,000 per month, compared with an average monthly gain of 226,000 for the first quarter of the year. Slower job growth in the second quarter occurred in most major industries”.
Tepid growth in U.S. hiring, lower-than-expected jobs additions, a static unemployment rate, and the slowing trend in the second quarter versus the first quarter took a heavy toll on market sentiment. However, the negative trend did not spur hopes of further economic stimulus this time. Through the week, there have been some dismal economic readings and the general mood has grown optimistic about further quantitative easing by the Federal Reserve. At the beginning of this week, a contraction in U.S. manufacturing activity threatened to dent investor sentiment, but hopes of economic stimulus from the central bank kept positive sentiment afloat. Later in the week, economic activity in the non-manufacturing sector was reported to be slower-than-expected, reaching its lowest level since January 2012. This had sparked off hopes of economic stimulus.
However, dismal nonfarm payroll data failed to sustain any such hopes and it came after initial claims data that showed signs of decline while the ADP reported addition of more-than-expected jobs. Separately, the week also witnessed weak data from the manufacturing sectors of Europe and China. Investors remained apprehensive about the global financial environment and interest rate cuts in China and the Euro zone and monetary policy measures by The Bank of England were of no help to US markets. Thus, the benchmarks, but for the Nasdaq, struggled to end on a winning note on a holiday-shortened trading week. The Dow and S&P 500 lost 0.8% and 0.6%, respectively, while the Nasdaq edged up 0.1%.
Coming back to Friday’s developments, crude oil prices lost 3% and were down to $84.45 per barrel. The Energy Select Sector SPDR (XLE) dropped 1.2% and energy shares including Exxon Mobil Corporation (NYSE:XOM), ConocoPhillips (NYSE:COP), BP plc (NYSE:BP), Transocean Ltd. (NYSE:RIG), Schlumberger Limited (NYSE:SLB), Marathon Oil Corporation (NYSE:MRO), Murphy Oil Corporation (NYSE:MUR) and Occidental Petroleum Corporation (NYSE:OXY) lost 0.9%, 1.0%, 1.8%, 2.2%, 1.4%, 2.0%, 1.0% and 1.4%, respectively.