Blog : Jobs: 'What, Me Worry?'

by Ed Zwirn on August 2nd, 2013

Alfred E. NeumanThe stock market having closed dramatically on the upside yesterday, the latest jobs numbers released this morning should prove no impediment to continued gains across the board, with penny stocks and other small-cap stocks leading the way, and the outlook for continuing Federal Reserve accommodation looking as promising as ever.

Don't be fooled by one of the headline numbers: The overall unemployment rate, which had bottomed out in April at 7.5%, did notch down to 7.4% in July, a better showing than the consensus had forecast and down from June's 7.6%.

But the "good" news stops there. This morning's release shows that job creation has decelerated in the U.S. Total nonfarm payroll employment rose by a disappointing 162,000 in July. Not only has July proven to be a disappointment, the job creation figure for June, which had been earlier reported at 195,000, was downwardly revised to 188,000.

This disappointing showing is all the more disappointing because it was unexpected. Wednesday's ADP employment change report, a private survey widely used to predict the "official" government figures, had pointed to a much-higher 200,000 jobs increase.

Continuing a recent trend, most of the new jobs created in July were either in the retail trade (47,000) sector or in foods services and drinking places (38,000). In addition, the financial sector hired 15,000 people in July, while manufacturing employment was essentially unchanged in July and has changed little, on net, over the past 12 months.

In another bleak number, hourly earnings for those lucky enough to have jobs did much worse than expected, falling 0.1% in July after rising 0.4% in June. In addition, personal income was up by an anemic 0.3% for June (following a downwardly revised 0.4% May rise) while personal spending rose 0.5%.


Initial reaction in the financial markets to these numbers has been mixed, with the blue-chip laden Dow Jones Industrial Average off slightly in preliminary trading, the NASDAQ preparing to open on the upside and the small-cap Russell 2000 index ahead 1.4% before the opening.

In addition, in a particularly bullish sign for penny stocks, the labor report has apparently prompted heavy buying of Treasury bonds and notes across the curve, pushing yields down on U.S. government "risk-free" debt and, ultimately, forcing investors hungry for yield into penny stocks, small-cap stocks, junk bonds and other riskier investments.

Although this initial movement of cash into U.S. Treasurys can be seen in bearish terms, its downward pressure on interest rates should ultimately flush more cash into riskier investment vehicles, including penny stocks, as investors seek to earn decent returns and central bank policy keeps pushing more of this cash into circulation.

Get Our Best Low-Priced Investments

  • don't have the time?
  • can't do all the work required?
  • want selections from the authority?

For only $199 per year, we give you our best high-quality, low-priced stock picks. Along with a full team, Peter Leeds is the widely recognized authority on small stocks. Start making money from penny stocks right away.