Exclusive Content

    If you are a client, sign in below to access exclusive content.

     
    Stocks closed the holiday-shortened week mixed; with some sectors, losing ground while others gained after a disappointing May jobs report signaled that the economy may not be strong enough for the Federal Reserve to raise rates this month. For the week, the S&P 500 ended flat, the Dow lost 0.37%, the NASDAQ increased 0.18%, and the MSCI EAFE added 0.13%.1
     
    On Friday, we got a look at how the labor market did in May. Analysts looked to the report to see whether the labor market would give the Fed the ammunition it needed to move at the June meeting. Here are a few things we took away:
     

    Job growth disappoints…but it has happened before

    The economy created just 38,000 new jobs last month, the worst showing since September 2010. The number of new jobs sharply missed expectations, which called for around 160,000 new jobs.2 However, seasonal factors, like a massive Verizon worker strike, which took 34,000 workers out of the count, were at play and may have affected hiring numbers.3
     
    The labor market has suffered temporary setbacks before. For example, in December 2013, the economy added a paltry 45,000 jobs; four months later, the economy gained 310,000 jobs. In March 2015, the labor market added just 84,000 jobs; in July, 277,000 new jobs were created.4
     

    Labor market trends may slow job creation

    The jobs report showed that the unemployment rate fell to 4.7%, the lowest since November 2007. However, much of the decrease occurred when jobseekers dropped out of the job search. As we approach full employment (some may argue that we’re already there), the effects of having fewer jobseekers begin to be felt by employers.
     
    Employers who are hiring may struggle to find qualified candidates due to skill mismatches, a problem that’s likely to continue to affect certain industries.5
     
    These issues affect job creation in a “mature” labor market recovery. One industry expert projects that monthly job growth will average 175,000 for the rest of 2016.6 In comparison, monthly job increases averaged 251,000 in 2014 and 229,000 in 2015.7
     
    Can the slower pace of hiring support the consumer spending the economy needs to grow? Perhaps, if wages continue to grow. Wages were up 2.5% in May as compared to a year ago, which is a better pace of growth than we have seen.8 Another measure of wage growth favored by economists, the Employment Cost Index (ECI), shows that wages were up 2.4% (year-over-year) in the first quarter.9 A third measure calculated by the Atlanta Fed shows a rosier 3.4% annual increase in hourly wages in April.10 You can bet that the Fed will be looking at all three measures when deciding if wage growth is strong enough to support consumer spending this year.
     

    The Fed may not raise rates in June

    The weak report also may have reduced the odds of a June interest hike by the Federal Reserve; though some analysts think that other positive economic indicators might give the Fed the confidence to act. Right now, the market is pretty convinced the Fed won’t raise rates in June; one measure shows that the current market probability of a June hike is just 3.8%, while the probability of a July hike is 31.3%.11
     

     

    Our view

    Overall, does the weak May jobs report signal weakness in the U.S. economy?
     
    Perhaps, though it’s far too soon to sound the alarm. Since other economic indicators like Gross Domestic Product growth, housing market activity, and personal spending all point to positive growth, it’s not likely that one weak report spells disaster for the economy.12 Rather than fixate on a single piece of data, it’s more important to look at overall economic trends.
     
    Looking ahead, we’re expecting investors to take stock of the dismal jobs report and perhaps hit the brakes on the three-month rally we’ve experienced. Summer tends to be a slow season for markets as many traders take time off and stocks can overreact to headlines. A small pullback in the weeks to come wouldn’t surprise us, though traders could also shrug off the report. While weak data always sidelines some investors, long-term investors should focus more on their goals and less on short-term market swings. As always, we’ll keep you updated.
     
     

    Sources

    The information in this article is not intended to be tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2014 Emerald Connect, LLC
    © Mahoney Asset Management

    INVESTING RISK DISCLOSURE
    Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money. Before investing, consider the funds’ investment objectives, risks, charges, and expenses. Contact Mahoney Asset Management for a prospectus or, if available, a summary prospectus containing this information. Read it carefully.

    IMPORTANT CONSUMER INFORMATION
    This web site has been prepared solely for informational purposes. It is not an offer to buy or sell any security; nor is it a solicitation of an offer to buy or sell any security.This site and the opinions and information therein are based on sources which we believe to be dependable, but we can not guarantee the accuracy of such information.

    Representatives of a broker-dealer or investment adviser may only conduct business in a state if the representatives and the broker-dealer or investment adviser they represent: (a) satisfy the qualification requirements of, and are approved to do business by, the state; or (b) are excluded or exempted from the state’s licenser requirements.

    An investor may obtain information concerning a broker-dealer, an investment advisor, or a representative of a broker-dealer or an investment advisor, including their licenser status and disciplinary history, by contacting the investor’s state securities law administrator.

    SECURITIES: ARE NOT FDIC-INSURED/ARE NOT BANK-GUARANTEED/MAY LOSE VALUE
    This information is intended for use only by residents of CA, CT, DC, FL,, MA, MD, MN, NC, NJ, NY, OH, PA, and VA. Securities-related services may not be provided to individuals residing in any state not listed above.

    The financial calculator results shown represent analysis and estimates based on the assumptions you have provided, but they do not reflect all relevant elements of your personal situation. The actual effects of your financial decisions may vary significantly from these estimates–so these estimates should not be regarded as predictions, advice, or recommendations. Mahoney Asset Managment does not provide legal or tax advice. Be sure to consult with your own tax and legal advisors before taking any action that would have tax consequences.

    Securities offered through
    Newbridge Securities Corporation,
    member FINRA / SIPC

    Investment Advisory Services offered through
    Newbridge Financial Services Group Inc.,
    an SEC Registered Investment Adviser.

    Office of Supervisory Jurisdiction
    1200 North Federal Highway, Suite 400
    Boca Raton, FL 33432

    Toll-Free: 877-447-9625
    Phone: 954-334-3450
    Fax: 954-489-2390