Employment report fails to pass the sniff test

But the economy is not all roses, either.

Robert Johnson, CFA 11 January, 2014 | 10:51PM

This week, equity markets were remarkably calm, taking a dismal employment report in stride and still managing to show a 0.6% gain for the S&P 500. I suppose part of that neutral reaction to the jobs report was due to high hopes that maybe the U.S. Federal Reserve's tapering program might be slowed, or even halted. At least, that's what the bond market seemed to think as the yield on the 10-year U.S. Treasury bond dropped from about 3% last week to 2.87% this week.

Given the Fed's Open Market minutes released earlier in the week, which expressed a lot of concern about the bond-buying program, I am not sure that assumption is correct. I don't think the poor economic news is enough to cause a wholesale reversal of the tapering program. In other words, we might be stuck with a modestly weaker economy and a less generous Fed all at the same time--not a good prospect.

The news over the past two weeks has not been happy: poor auto sales, a disappointing purchasing managers' survey for the services industry, a subpar retail holiday season, and a crummy employment report. Even home price growth is beginning to slow down. Only the trade report was unequivocally good, though perhaps a little too good to be sustained.

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Robert Johnson, CFA

Robert Johnson, CFA  Robert Johnson, CFA, is director of economic analysis for Morningstar.

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