This morning, ADP disappointed the market by estimating there were only 133 thousand jobs produced in May. (This ignores changes in government jobs, which has usually been negative since 2009. It is hard to believe there are still 600 thousand fewer government jobs now than in 2008.) This suggests tomorrow’s all-important Jobs Report will only be around 120 thousand. The bad news is that the market is expecting 155 thousand tomorrow. Normally, that would suggest a strong sell-off.
Then, the weekly unemployment claims came in higher than expected, more bad news.
Then, first quarter GDP growth disappointed at only 1.9%, but the market was expecting 2.2%. The miss was largely because government spending was reduced more than expected.
That’s a lot of bad news in only an hour. But, it is interesting to me that the futures fell by only 20 points. I would have expected a much bigger drop. This suggests less sensitivity to the U.S. economy and more sensitivity to something else.
It is not news that the U.S. stock market has become the tail wagged by Europe, but that is the wrong lesson to learn. There are normal declines in the economy and abnormal declines. A decline in the stock market from a garden-variety recession is normal. A decline from a financial crisis is abnormal . . . and terrifying.
The lesson is that normal economics are always over-whelmed by a financial crisis. They are very different problems. A financial system is the lubricant for the economy. Without it, the economy quickly grinds to a halt. Of course, the stock market knows this and will continue to over-react to European headlines — or even European rumors — darn it!