Economix: Wall Street’s Ideal Jobs Gain: Middling

For most Americans, the hopes for Friday’s employment report are simple: the more jobs the economy created last month, the better.

On Wall Street, the anticipation is decidedly more complicated, and there is the possibility that the economy could have created too many jobs.

How could a lot of new jobs be a bad thing? As is frequently the case in the markets these days, the answer goes back to the Federal Reserve. Many investors assume that if Friday’s employment report shows an unexpected spike in new jobs, the Federal Reserve will feel more pressure to step back from its stimulus programs – or, as traders put it, to taper quantitative easing.

Investors have been worried since mid-May that the Fed may be preparing to step back from its bond-buying programs sooner than many had anticipated. That is based on the statement by the Fed chairman, Ben S. Bernanke, that the central bank could look at slowing down its bond purchases “in the next few meetings.”

But Fed officials have said they will make changes only if the economy is showing improvement. Given the market’s dependence on Fed stimulus, many on Wall Street have been left hoping that the economy does not show too many signs of improvement.

“It’s perverse,” said Ed Yardeni, the president of Yardeni Research. He said that if Friday’s jobs report showed a net gain of more than 200,000 jobs in May, it could end up hurting stock markets, at least in the short term.

Mr. Yardeni said that a very low number – anything under 100,000 — would also likely be a bad thing for markets, as it would indicate that the Fed’s stimulus was not working, leaving few options for fostering economic growth.

The right number, à la Goldilocks, is probably somewhere right in between. Analysts are expecting a number around 165,000. If it is close to that, investors are likely to conclude that economic growth is happening, but not at a rate that would lead the Fed to slow down its stimulus.

“The market will conclude it’s just more of the same,” Mr. Yardeni said.

Article source: http://economix.blogs.nytimes.com/2013/06/07/wall-streets-ideal-jobs-gain-middling/?partner=rss&emc=rss