Markets May Lose Steam If U.S. Jobs Data Disappoints
Markets May Lose Steam If U.S. Jobs Data Disappoints
By:Ilya Spivak
The U.S. economy’s trajectory is discouraging, even after an off-the-charts jump in imports is taken out of the equation
- Imports skewed Q1 U.S. gross domestic product (GDP) data, but slowing consumption is a worry.
- All eyes are turning to the jobs report for a clearer picture of the economy.
- Stock markets may lose steam as bonds rise if labor data disappoints investors.
Stock markets have shrugged off disappointing U.S. economic growth data. The first-quarter gross domestic product (GDP) report showed output unexpectedly shrank for the first time in three years. Shares plunged at first, with the S&P 500 dropping as much as 2.2%, but then bounced to erase the drop and eke out a narrow gain by the closing bell.
Perhaps traders were heartened by the report’s internals. They showed a staggering jump in imports skewed the data downward amid a rush to stockpile inventories before the onset of tariffs championed by the Trump administration. The markets may have reasoned that this distortion will evaporate now that the levies are in place.
What is the real story in U.S. GDP data?
Such optimism seems misplaced, however. That imports amounted to a shocking drag of 5.03 percentage points (ppt) on overall GDP certainly looks like an anomaly. The only other comparable instance for over two decades was the 7.46ppt drawdown in the third quarter of 2020 as growth seesawed amid the COVID-19 pandemic.
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However, the external sector makes a minimal contribution to overall growth, amounting to just 4.2% of the total in the first quarter. By contrast, consumption accounted for 68.5%. Its contribution dropped to just 1.21ppt, the smallest since the second quarter of 2023. That amounted to the slowest expansion for this vital area in nearly two years.
This means the trajectory for the U.S. economy was hardly encouraging in the first three months of the year, even after imports’ off-the-charts expansion is taken out of the equation. With this in mind, the spotlight turns to April’s U.S. employment report as markets search for a clearer picture of the business cycle.
Can stock markets stomach a disappointing U.S. jobs report?
The Bureau of Labor Statistics (BLS) is expected to report that the economy added 130,000 jobs last month, climbing down from the 228,000 increase in March. The unemployment rate is penciled in to remain unchanged at 4.2%. Analytics from Citigroup suggest U.S. data flow has tended to undershoot projections recently, hinting at disappointment risk.
Purchasing managers’ index (PMI) data from the Institute of Supply Management (ISM) and an analog report from S&P Global tracking the U.S. manufacturing sector bolster the case for weakness. The former showed employment fell for a third consecutive month. The latter flagged the worst result for job creation in six months.
Weak labor market figures may shatter traders’ rose-tinted disposition after the GDP report and sharpen worries about the onset of recession. That might weigh heavily on stock markets and stoke speculation about a dovish turn at the Federal Reserve when policymakers meet next week, driving down yields and the U.S. dollar as Treasury bonds rise.
Ilya Spivak, tastylive head of global macro, has 15 years of experience in trading strategy, and he specializes in identifying thematic moves in currencies, commodities, interest rates and equities. He hosts Macro Money and co-hosts Overtime, Monday-Thursday. @Ilyaspivak
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