Why Adding 120,000 Jobs Is Seen as Bad News
The Dow and the two other major indexes are down today after an apparently disappointing jobs report (more on that in a sec):
Dow Jones Industrial Average (INDEX: ^DJI)
Nasdaq (INDEX: ^IXIC)
S&P 500 (INDEX: ^GSPC)
Source: Yahoo! Finance.
The Bureau of Labor Statistics released its latest jobs report on Friday (the market was closed). The numbers don't actually look bad in a vacuum. The U.S. economy added 120,000 jobs in March, lowering the unemployment rate from 8.3% to 8.2%.
What brought the negative market reaction was the heightened expectations (200,000 jobs was the hope) after the last three months brought over 200,000 net jobs each.
There are two additional levers beyond jobs additions that you should be aware of:
- The U.S. population is growing. To give you an idea, the "civilian noninstitutional population" (aka the folks eligible for jobs) rose by 3.6 million to 242.6 million people from last March.
- Of those 242.6 million people, 63.8% participate in the workforce (by either having a job or looking for a job). That's down from 64.2% last March.
In other words, two things can take a chunk out of future job additions: population growth and any increases in the percentage of those people looking for jobs. This is how you can add 200,000 new jobs a month every month and still only reach an unemployment rate of 6% by May 2021. Click here for more on that calculation and a great summary of the jobs report by my Foolish colleague Morgan Housel.
Looking at the Dow in specific today, it's not a big surprise that Bank of America (NYS: BAC) and Disney (NYS: DIS) have taken the biggest tumbles on a lukewarm jobs report (down 2.5% and 1.9%, respectively). Both are closely tied to the economy. As the grease to the wheels of capitalism, Bank of America and the other big banks react violently to any changes in economic sentiment. And Disney relies on the discretionary income of households in the U.S. (and around the world).
That's the rundown of the economic news for the day. For a more stock-focused, micro view, check out our free report: "The Motley Fool's Top Stock for 2012." It details a company hand-selected by our chief investment officer. Just click here for a copy.
At the time this article was published Anand Chokkaveluowns shares of Bank of America and Walt Disney, as well as long-dated call options in Bank of America. The Motley Fool owns shares of Bank of America.Motley Fool newsletter serviceshave recommended buying shares of Walt Disney. The Motley Fool has adisclosure policy. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.
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