The US markets closed lower on Friday, as investors weighed implications of a dismal jobs report on the Federal Reserve monetary policy decision in two weeks. US Treasuries which are also sensitive to shifts in rate-hike expectations saw their prices soar, pushing yields sharply lower as doubts about the vigor of the economy and a possible delay in rate increases sparked haven-related buying. Oil prices fell to their lowest level in more than a week as an increase in the number of active US oil rigs implied higher crude output. The US created just 38,000 new jobs in May and nearly half a million people dropped out of the labor force, raising doubts about the strength of the economy and possibly forcing the Federal Reserve to scuttle plans to raise interest rates this summer. The increase in hiring was the smallest since the fall of 2010. More than half of the nation’s major industries eliminated jobs last month, the first time that’s happened in several years. In another bad sign, temp employment fell by 21,000 and it’s down 64,000 so far this year. Average hourly wages climbed 0.2% last month to $25.59. Hourly pay rose 2.5% from May 2015 to May 2016, just a hair below the post-recession high. On the economy front, the US trade deficit rose in April by 5.3% to $37 billion after a rebound in imports of foreign goods such as autos, aircraft and clothes. The April report reflects revisions back to 2013 showing somewhat smaller deficits. The nation’s trade gap was 7.3% lower in 2015 than originally reported, 3.6% in 2014 and 3.5% in 2013. In April, US imports rose 2.1% to a seasonally adjusted $220.2 billion in April. US exports, meanwhile, rose a smaller 1.5% to $182.8 billion. The trade gap in March was revised to $35.5 billion. That’s the smallest trade gap since December 2013.
Moreover, a pair of surveys released showed the services side of the US economy slowed in May. The Institute for Supply Management stated that its services index dropped in May to 52.9%, the slowest pace since February 2014. A similar index from Markit fell to 51.3 in May, the lowest level since March. The readings are still above the 50% level indicating expansion and are better than the manufacturing side of the economy. ISM reported that its gauge of new orders for non-manufacturers showed slower growth in May, hitting 54.2%, down 5.7 points from April. The employment barometer fell into contraction territory of 49.7% from 53% in April. Business activity also slipped to 55.1 in May, a drop of 3.7 points from the prior month. However, factory orders rose 1.9% in April, the second strong month in a row. Durable goods orders were up 3.4%, as published in an earlier estimate. Orders in the mining, oil field and gas field industry were down 22.8%.
Meanwhile, Chicago Federal Reserve President Charles Evans stated that there is a reasonable case for holding off increasing the federal-funds rate until core inflation gets above 2% on a sustainable basis. Evans added that it may be appropriate to have two 25 basis point moves between now and the end of the year. Evans believes the risks to the US economy when it comes to growth and inflation are weighted to the downside, so he’s still in favor of more accommodation than usual to deliver an extra boost to aggregate demand. Federal Reserve Governor Lael Brainard called for the central bank to wait for more data before lifting interest rates as she pointed that jobs report shows the labor market has slowed.
The Dow Jones Industrial Average was down 31.50 points or 0.18 percent to 17,807.06 Nasdaq slipped by 28.84 points or 0.58 percent to 4,942.52 while, S&P 500 dropped 6.13 points or 0.29 percent to 2,099.13.
The Indian ADRs closed mostly in red; HDFC Bank was down 0.25%, Dr. Reddy’s Lab was down 0.10% and Infosys was down 0.06%. On the other hand, Tata Motors was up 0.11% and ICICI Bank was up 0.05%.
