The Dow Tumbles on Slower Jobs Growth
Despite the extended spring weekend, the markets reopened on Monday with less vigor and energy than investors had hoped for. The culprit: Friday's March jobs report. Lackluster growth in nonfarm payrolls and news that the labor pool is shrinking caused the Dow Jones Industrial Average (INDEX: ^DJI) to fall about 1% in Monday's morning trading.
From December to February, the U.S. economy added over 200,000 jobs per month. Not surprisingly, a March report that showed only 120,000 additional jobs jolted the American markets. As some analysts have pointed out, such modest growth is barely enough to match the monthly growth in population.
Depending on your news source, this bit of data could indicate "moderating" growth (as pointed out by the Labor Department), or it could signal a direr situation, like a fizzling recovery. For the most part, however, investors should avoid the tendency to fixate on a single data point and look at the broader picture for perspective.
Why it's not so disappointing
When evaluating the numbers, the unemployment rate often becomes the focal point of the discussion. In this regard, the report provided a reason for optimism -- the unemployment rate actually slipped from 8.3% to 8.2% during March. Unfortunately, this was primarily due to people dropping out of the workforce, so the overall effect is a bit of a mixed bag. When it comes to unemployment, a downward trend sure beats the alternative, but should investors fret over the factors driving this figure down?
On one hand, America's workforce will continue to age as the demographics point toward near-term retirement for many baby boomers. Thus, we will continue to see fallout in the labor force. Likewise, this monthly snapshot of the jobs market looks eerily similar to last year's reports which showed solid growth during the winter followed by a slowdown in the spring. On top of these two factors, there are other reasons to look at the glass as half full.
First off, the March jobs report will be revised twice by the Bureau of Labor Statistics, and these updates sometimes result in drastic changes to the underlying numbers. In 2011, for example, revisions added 260,000 jobs during the course of the year. Quick math reveals that a similar revision could boost March's numbers by over 20,000 jobs.
Furthermore, focusing on the monthly data points causes us to miss the fact that we have added jobs in the private sector for 25 months straight. Since the depths of the Great Recession, America's economy has been on a steady, upward climb. In 2011 alone, the Dow has returned around 6%, the S&P 500 (INDEX: ^GSPC) is up 10%, and the Nasdaq (INDEX: ^IXIC) has climbed over 15%. The returns are even more impressive when you look at some of the stocks that suffered the most during the fallout.
Despite plunging today, the financial sector, for example, has witnessed tremendous growth in the shares of large institutions like Bank of America (NYS: BAC) and JPMorgan Chase (NYS: JPM) . While these stocks have gained over 60% and 30%, respectively, they remain highly susceptible to macroeconomic factors due to greater leverage and their connection to all facets of the global economy.
For even more detailed analysis, I suggest reading fellow Fool Morgan Housel's dissection of the jobs report today. Overall, there were some highlights and lowlights, but the March numbers still only reflect a single data point.
Foolish investors can gain perspective by following the broader indexes, but we encourage fundamental stock analysis over strategies that attempt to time the market. After all, even with our recent growth spurt, some legendary economists like Wharton's Jeremy Siegel are predicting the Dow could rise to 17,000 in 2013. If you're looking to take advantage of this potential bull market, start your research by reading the special Motley Fool report, "3 Stocks That Will Help You Retire Rich." Some of our best analyst research is made available free in this report for a limited time - download your copy now.
At the time this article was published Isaac Pino owns no shares in any of the companies mentioned in this article. The Motley Fool owns shares of JPMorgan Chase and Bank of America. 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.