Dow Jones Industrial Average (DJIA) futures jumped 80 points in early trading Tuesday after Treasury Secretary Steven Mnuchin confirmed China trade talks were scheduled for early October. But the news overshadowed what could be a canary in the coal mine: declining US service sector jobs.
In a large data dump on Monday, jobs in the US service industry fell for the first time in a decade. The data will likely put a dent in the forthcoming non-farm payroll numbers which, in turn, could fast-forward Federal Reserve easing.
Dow futures point to strong stock market open
Dow Jones Industrial Average (DJIA) futures were 80 points higher on Tuesday, following a strong Asian session.
US service jobs: first decline in a decade
The US service sector accounts for 80% of all American jobs, so a decline should make investors nervous. The IHS Markit services purchase managers’ index (PMI) for employment, which tracks job growth, fell below 50 for the first time since December 2009. A figure below 50 indicates contraction.
“The survey indicates that businesses continue to struggle against the headwinds of trade worries and elevated uncertainty about the outlook. Firms have become more risk averse and increasingly eager to cut costs,” – IHS Markit chief Chris Williamson
It’s not an immediate concern, especially considering broader barometers of manufacturing and service sector health were strong. But it’s definitely a note of caution.
Why jobs matter for the Dow
The Federal Reserve’s number one mandate is to “promote maximum employment, which means all Americans that want to work are gainfully employed.”
The Fed watches employment numbers very closely to inform its interest rate decisions and broader monetary policy. If employment falls, the Fed may be incentivized to speed up its rate cut cycle. And that’s yet another prop for the Dow Jones and wider stock market.
Indeed, traders may be betting that weak jobs data will fast-forward the Fed’s stimulus plans, hence the stock market boost today.
September 24, 2019 10:18 AM