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Dow Jones Jumps Despite Disappointing Jobs Report

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The Dow was down .064 percent right after the opening bell Friday, responding to a jobs report that saw unemployment reach below 4 percent for the first time in over 8 years.

While forecasts were for more jobs added in April than data delivered, the overall unemployment rate was lower than anticipated. Wage growth was also on the upswing, with the first quarter of this year showing accelerated hourly compensation, which indicates a build-up of inflationary pressure.

The unemployment rate fell to 3.9 percent in the April jobs report, according to the Bureau of Labor Statistics, while the U.S. economy added 164,000 jobs for the month, but missed expectations of a 193,000-195,000 new jobs.

For the past six months, the unemployment rate has stuck at 4.1 percent, so April data may have a bigger effect on markets. The unemployment rate was expected to fall only to 4 percent.

(Click to enlarge)

Source: Bis.gov

An unemployment rate this low has not been recorded since the fourth quarter of 2000.

The Dow got off to a rocky start on Friday morning, but has since rebounded.  

(Click to enlarge)

The jobs report comes just as a Thursday rally saw it stem a four-session slide and regain 394 points.

S&P 500 futures also slipped before the bell, down 10.30 points or 0.4 percent, while Nasdaq-100 futures fell 31.50 points, or 0.5 percent in the pre-market, but pared losses after the market’s open:

(Click to enlarge)

The S&P 500 rebounded from its pre-market decline:

(Click to enlarge)

But there are other things weighing on the markets right now, too, including the second day of meetings in Beijing between Chinese and U.S. officials. The meetings have markets on edge as the first day of talks closed yesterday with no public statements and nothing to calm market nerves over a potential trade war.

Later today, Federal Reserve officials are set to speak about the financial situation, the Fed’s balance sheet and liquidity regulation.

On Wednesday, following a two-day policy meeting, the Fed hinted that it isn’t worried about sudden escalation in prices or an abrupt slowdown in economic growth that would lead to changes to its current planned pace of interest rate hikes, which were last increased in March. Related: U.S.-China Trade Talks In A Stalemate

The next rate hike is expected in June, and markets were somewhat soothed by indications that there wouldn’t be one sooner—maybe, possibly. But the Fed is flexible, and the market knows this.

According to the New York Times, indications are that officials are divided over whether to expect three or four rate hikes this year, but a “narrow majority” is leaning toward three.

As Bloomberg notes, wages and salaries are rising too fast and the labor market is running of “slack”, while the economy is still growing steadily.

The silver lining may be this: The U.S. is exporting more, and the trade deficit has narrowed. According to the Commerce Department, the trade deficit has declined 15.2 percent to $49 billion as of March—hitting is lowest level since September.

"The good news is that we are exporting more, but with the labor markets incredibly tight, labor costs are accelerating as well," Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania, told Voice of America. "The rise in labor costs will undoubtedly factor into policymakers' thinking when they meet again in June."

By Fred Dunkley for Safehaven.com 

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