US markets closed lower on weak jobs data

05 May 2016 Evaluate

The US market closed lower on Wednesday, as weaker-than-expected private-sector jobs data and a slide in worker productivity eclipsed reports of strength in the services industry. On the economy front, private-sector employment gains slowed markedly in April. According to Automatic Data Processing Inc (ADP), Employers added 156,000 jobs in April. This is the weakest estimate since February 2014. ADP lowered March’s gains to 194,000 from the prior estimate of 200,000. The small private-sector businesses added 93,000 jobs in April, medium-size businesses added 39,000 and large businesses added 24,000. All of the gains were in the service sector - 166,000 jobs were added there, down from 189,000 in March. The productivity of US businesses and workers fell by a 1% annual rate in the first quarter, marking the fourth decline in the past six quarters. Weak productivity growth has been a hallmark of the seven-year old recovery, a problem that if not rectified is likely to hold the economy back. Higher productivity is the key to better pay and an improved standard of living. Over the past year productivity has risen at a meager 0.6% pace, well below the historic 2.2% US average. As a result, unit labor costs climbed 4.1% in the first quarter, the biggest increase since the end of 2014. Still, unit labor costs have risen just 2.3% in the past year, little changed from the prior quarter.

On the other hand, the US trade deficit shrank in March by almost 14% to $40.4 billion - the lowest level in more than a year - but the plunge reflected a tough climate for American exporters and more caution on the part of consumers. US exports fell 0.9% to $176.6 billion in March and remained near the lowest level in several years. Exports of food and industrial supplies dropped to the lowest level since 2010. Imports fell an even steeper 3.6% to $217.1 billion and touched a five-year low. Although cheaper oil contributed to the drop, the US also imported fewer autos, clothes, computers, consumer goods, wine and beer. The decline in imports offers more evidence that consumers grew cautious after a rocky start to 2016, when stock markets tanked briefly on worries about a worsening global economy. Moreover, the manufacturers and energy producers have it tough, most companies in the US continue to grow at a moderate pace, a signal that the vital signs of the seven-year-old recovery remain intact. The Institute for Supply Management stated that its nonmanufacturing index rose to 55.7% in April from 54.5%, marking the highest level of 2016. The index surveys executives in industries such as retail, health care, hospitality, finance and technology that employ the vast majority of American workers.

The Dow Jones Industrial Average lost 99.65 points or 0.56 percent to 17,651.26, Nasdaq was down by 37.58 points or 0.79 percent to 4,725.64 while, S&P 500 dropped 12.25 points or 0.59 percent to 2,051.12.

The Indian ADRs closed mostly in red; Tata Motors was down 1.72%, Dr. Reddy’s Lab was down 1.32%, ICICI Bank was down by 0.09% and Infosys was down 0.07%. On the other hand, HDFC Bank was up 0.06%.

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