We might not be getting jobs data for a while thanks to the government shutdown.
However, when we return to regularly scheduled programming of data releases, there are a few key numbers for investors to watch out for in the months ahead, Tom Essaye, founder of Sevens Report Research, said this week.
The job market has started to show signs of weakness in recent months. Monthly payroll gains have been under 100,000 since May, and job openings continue to fall. On Thursday, ADP data showed private payrolls declined by 32,000 in September.
Still, investors seem calm—at least for now—about the labor market’s prospects amid Federal Reserve rate cuts.
When things could really start to impact stocks remains unclear, but Essaye laid out a few crucial signposts to watch out for.
The first sign is if initial jobless claims hit a four-week moving average of 300,000. Last week, they were at 218,000.
Second is the unemployment rate. If it rises above 4.5%, it should be cause for concern, Essaye said. The rate in August was 4.3%.
“A move above 4.5% (so, 4.6% or higher) is consistent with labor market deterioration, and at that point a move towards 5.0% is likely (which is consistent with economic slowdowns),” Essaye wrote on Thursday.
And third is job openings. Watch for a drop to 6.5 million openings from the current 7.2 million.
“JOLTS haven’t been below 6.5 million in years and a decline below that level implies that companies are slashing hiring and “hunkering down” on expenses (which will put a headwind on the economy),” he wrote.
If any of these thresholds are crossed in the near future — assuming the Bureau of Labor Statistics resumes publishing them soon — they could trigger as much as a 30% pullback in the equity market, Essaye said.
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“People are dealing with higher prices and consumers are still spending because they have jobs. If layoffs occur en masse and those labor market indicators are hit, then consumer spending will sharply contract, making any economic slowdown much worse,” Essaye said.
He added that a decline of 500-700 points in the S&P 500, or 10%-15%, could be expected.
“If a full-on economic contraction occurs, an ultimate 30% decline in the index isn’t unreasonable.”
Some market pros this week warned that the government shutdown could worsen the weakness in the economy, especially if it drags on.
“Investors can operate under a simple rule of thumb: the longer a shutdown lasts, the greater its effects on consumer confidence, economic activity, and market outcomes,” said Lauren Goodwin, chief market strategist at New York Life Investments, in a note on Wednesday.
Mark Zandi, the chief economist at Moody’s, also made the point that the lack of data from the BLS could create problems for the data-dependent Fed as it debates its next policy move, fueling uncertainty among investors.
“If the shutdown lasts a month or two, the lack of government economic data will likely impact the Fed’s monetary policy decisions and weigh on financial markets,” he told Business Insider this week.