Jobs, Jobs, Jobs
Good economic data should continue to support cyclical stocks. And the market will have plenty of it to pour over to help better determine just how strong the U.S. economy is.
The jobs data is paramount, given the Federal Reserve's insistence that strength in the labor market, along with inflation, will help determine when it starts to pare back its bond purchases.
Jeffrey Cleveland, senior economist at Payden & Rygel, noted in an email that the jobs report "trumps all else, in my view, due to the market's fixation on the 'flow' of Fed purchases and possible 'tapering.' Although throughout the week the market will ebb and flow with the jobs-related data" like the ADP employment report, the ISM surveys and weekly jobless claims.
Eric Rosengren, president of the Federal Reserve Bank of Boston, said on Wednesday, "the Fed should continue the purchase program until we see more sustained improvement in labor markets and have greater confidence that the economic recovery is sufficiently self-sustaining to yield continued progress in reducing the still very high unemployment rate."
Economists polled by Reuters forecast the economy created 160,000 nonfarm payroll jobs in May, a bit softer than the 165,000 created in April. But the unemployment rate is seen holding steady at 7.5 percent.
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That could keep the Fed from tapering this year, some economists say. Jerry Webman, Oppenheimer Funds' chief economist, said that it would take a series of reports showing more than 200,000 new jobs before the Fed starts to reduce its quantitative easing program.
Economists at Bank of America Merrill Lynch agree. "QE tapering is possible this year, but it would probably require sustained 200,000 gains in payroll employment and commensurate strength in other growth indicators, along with higher inflation," they wrote in a research note. "We continue to expect none of the above."