Magazine article American Banker

Job Growth News Gives a Boost to Bank Stocks

Magazine article American Banker

Job Growth News Gives a Boost to Bank Stocks

Article excerpt

Bank stocks soared as interest rates plunged Friday in reaction to news of slower job growth, a sign the economy is slowing and the Federal Reserve may not need to douse inflation.

After correcting for the effects of the United Parcel Service strike, the Labor Department said only 53,000 jobs were created in September, and the unemployment rate held steady at 4.9%

The report surprised business economists, who expected post- strike payroll growth over 250,000 and had predicted the jobless rate would fall. Meanwhile, hourly earnings increased only modestly, and the average workweek declined slightly.

The data "provided financial markets with everything they could have hoped for," said Bruce Steinberg, chief economist at Merrill Lynch & Co. Notably, hourly wages were up just 0.3%, despite a minimum wage increase.

The reading also bolsters the Fed's decision last week not to raise rates, and appears to make central bank action on monetary policy less likely for the rest of the year.

"We expect the Fed to remain on hold well into 1998," said Mr. Steinberg, adding that bond yields "may fall through 6% even sooner than we have been forecasting."

Rates tumbled dramatically Friday. As bond prices rose, the yield on the Treasury's benchmark 30-year "long" bond plummeted to a new low for the year of 6.16% in morning trading. The previous low point this year was 6.30% on July 31.

Shares of banks and stocks generally jumped sharply on the news, then pulled back to more moderate gains. …

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