Markets are set to end a tumultuous week on an even worse note after U.S. employers unexpectedly cut nearly 100,000 non-farm payroll jobs in February, according to the Bureau of Labor Statistics, a month where analysts polled by Bloomberg were expecting the economy to add 55,000 jobs.
The Dow Jones Industrial Average, an index of the country’s blue-chip stocks, was down another 1% at last check Friday, bringing its 5-day losses to more than 3%. Meanwhile, the more widely representative S&P 500 pared back steeper losses earlier in the day, but was still down 0.9% at last check and down 1.6% for the week.
War has not helped stocks
Markets have been pressured by the sudden outbreak of all-out war in the Middle East as the U.S. and Israel bomb Iran and Iran retaliates against Israel, U.S. combat bases in the region, and perhaps most disruptively, the oil infrastructures of the countries hosting those U.S. army bases.
Earlier this week, Iran announced that it was closing the Strait of Hormuz, sending gas prices soaring overnight, rising 11 cents in the biggest single-day jump in two decades, to $3.11 per gallon on average.
About 20% of the world’s oil travels through the Straight of Hormuz, so some analysts fear oil prices could surge to $100 a barrel, though Wall Street analysts are a bit more conservative in their doomsday scenarios.
Since the war broke out on March 1, it had no effect on the February jobs report, but the snowball effect from higher oil prices could show up in the March report.
“The jobs report was weaker than expected, and this does include the possible drag on employment from higher oil prices,” Scott Helfstein, head of investment strategy at Global X, said in an email to TheStreet. “Sharp increases in oil prices typically coincide with labor force reductions. When oil prices spike by 20%, the U.S. typically loses jobs, and that is the current scenario.”
February BLS jobs report shows the U.S. cut 97,000 jobs
U.S. employers cut 97,000 non-farm payroll jobs in February, a month when analysts were expecting the economy to add 55,000 jobs. The unemployment rate ticked up to 4.4% from 4.3% the previous month.
While the unemployment rate is slightly below the 4.5% that registered a year ago, the number of people who have dropped out of the labor force is up, as is the number of people who currently want a job.
Related: Goldman Sachs forecasts dreary unemployment report tomorrow
The job losses were wide-ranging, and even healthcare, which has been a bright spot in the employment economy, saw a downturn in the month.
“There really is not much good news coming out of the employment report. There were declines in almost every category. Transportation, manufacturing, construction, information, and business services were all down. Healthcare had been propping up the numbers, but a large strike sent those numbers lower as well,” Helfstein said.
However, despite the dismal outlook, there is a silver lining in the February jobs numbers for Helfstein.
“There is not much good news in the jobs report given the broad-based declines, but there is a contrarian take,” Helfstein said. “Total jobs are still above the long-term trend, so the present downsizing is actually more of a rightsizing.”
Wall Street estimates Iran war oil price increase
The last time the Brent crude oil price hit $100 was in 2011, when speculators thought the “Arab Spring” in Egypt could lead to the closure of the Suez Canal.
Brent crude prices were up 6.77% to $86.53 at last check Friday after the commodity started the week $10 cheaper per barrel. Citi expects Brent crude to trade between $80 and $90 over this coming week and will pull back to $70 if the situation is de-escalated.
Meanwhile, analysts at Goldman Sachs are pricing in an $18 per barrel “real-time risk premium” on crude prices, according to a note on Sunday, March 1. That premium could come down to $4 a barrel if only 50% of flows through the Strait of Hormuz are halted for a month.
More jobs news:
- Americans pay at the pump in fastest gas price increase in 20 years
- Markets slide ahead of U.S. jobs and inflation reports
- Rising corporate profits, falling wages drive K-shaped economy
“The disruption creates a dual supply shock: Not only are current exports through the Strait halted, but OPEC+ additional volumes and ultimately most of OPEC’s spare capacity — typically a key lever for balancing the global oil market — are inaccessible while the waterway remains closed,” WoodMac analysts said in a note, according to Reuters.
Rising unemployment, coupled with rising oil prices, could persuade the Federal Reserve to intervene, putting a March rate cut back on the table for the central bank.
“The combination of the weak report, the downward revision to the strong January job growth, and the risk from higher oil prices could push the Fed toward supporting labor markets despite above target inflation,” Helfstein said.
