The Market Recap and What’s Next

August was a frenetic month in the stock market. The S&P 500, an indicator as to how the stock market is performing, was up almost 2.3% for the month. The Dow Jones, another large index, was up about 1.8%, at an all-time high. Meanwhile, the Nasdaq Composite-listed technology companies went up by 0.6%. Generally speaking, it was a pretty positive month overall in the markets!

With the beginning of September, Monday will be quiet due to the Labor Day holiday, but everyone awaits the big news later in the week: the August jobs report. This is a report card on how the economy is doing-after a mixed reading in July.

What to Watch in Jobs Report

The big event for this week is the August jobs report, due out on Friday. Investors and economists will be watching the report closely to see if the slowdown in July was only a one-time blip or a harbinger of worse things to come.

Only 114,000 jobs were added to the U.S. economy in July, many fewer than what was expected. Unemployment was at 4.3%, which was the highest in nearly three years. Those numbers started making a lot of people really concerned about recession. But some experts think that the July numbers might not tell the whole story.

Still to come are other key indicators, including job openings, private wage growth, and the reports on the services and manufacturing sectors. These will give a fuller picture of the state of the economy.

Companies Reporting Earnings

Earnings this week will be pretty quiet, save for a few big names: Broadcom, with one of the biggest positions in the technology sector, and Dick’s Sporting Goods, the well-known retailer. While these reports aren’t likely to move the market, they are worth a look.

A Closer Look at the Labor Market

The July jobs report was not good. The U.S. economy added a whopping 114,000 jobs, way below the forecasts. The unemployment rate now stood at 4.3%, the highest in almost three years; all this caused fears of a weakening job market.

However, new data started to arrive that the economy might be strong. For example, unemployment claims filed by people who just lost their jobs showed a positive trend, they stopped going up, which suggests that the job market may not be that weak as the report in July suggested.

Some economists, such as Sam Coffin from Morgan Stanley, believe that this is a very high unemployment rate in July because of temporary layoffs. He noted that many layoffs in Texas occurred due to a storm that struck hard against the state called Hurricane Beryl; as the effects of the hurricane start to fade out, he thinks the unemployment rate will improve.

Coffin’s team is forecasting an unemployment rate of 4.2% and 185,000 jobs added in August. It is also predicting a 0.25% cut by the Fed in interest rates in September if things go as expected in the job market.
Just what do economists’ say?

Most economists agree with the optimism expressed by Coffin. In a survey conducted by Bloomberg, they expect the U.S. economy to have added about 163,000 jobs in August and for the jobless rate to decline to 4.2%, a drop for the first time since March.

Why Does the Fed Watch Closely?

Meanwhile, all this data has not gone unnoticed by the Federal Reserve-the nation’s bank, in a sense. It is their job to keep inflation-the general rise in the price of goods and services-in check. The Fed targets an inflation rate of 2%, which they believe is the most healthy for the economy.

Their favored inflation measure posted a gain recently, showing that prices were still rising but more slowly. That’s good news because it means that inflation is trending closer to the Fed’s 2% target. A solid payroll number, combined with continued slowing inflation, might give the Fed room to cut rates and make borrowing cheaper to help the economy grow.

Why Should You Care?

You might ask why any of this matters. Jobs and unemployment rates include everyone. When people have jobs, they earn an income and can spend that income, which develops businesses. When businesses do well, the stock market usually does quite well too.

In the opposite case, with people losing jobs and unemployment being high, the consumption would be less, hence leading to the slowdown of the economy, and it might even enter into recession, that is defined as the shrinkage of the economy over some period.

For students and the youth, such numbers can also serve as an indicator of job prospects later in life. As the economy expands and companies start hiring, there is a greater likelihood of you finding more jobs when you join the workforce.

What’s next? Well, watch for the August jobs report this Friday. That may give a better feeling of the way the economy is going in which direction. If the job market is rebounding or still recoiling. And look for news from the Fed. If the Fed cuts the rates, that may be an indication that it is concerned with the economy and wants to give it a boost.

Stay tuned, because this week is going to be full of interesting news that may affect not just big investors, but all of us!