Stronger than predicted payroll number shows confidence in U.S. economy

The latest data shows payrolls rose in April by the most in two years and the jobless rate plunged.

Agnico Eagle Mines Ltd. jumped 5.2 percent after reporting a record quarterly gold production. QLogic Corp., the supplier of chips and switches for corporate networks, rose 3.8 percent. LinkedIn Corp. dropped 2 percent after giving a quarterly sales forecast that missed analysts’ estimates. CVS Caremark Corp. slumped 1.9 percent after posting first-quarter profit that missed analyst estimates as cold weather and a mild flu season hurt sales.

Futures on the S&P 500 expiring in June dropped less than 0.1 percent to 1,877.1o at 8:59 a.m. in New York, after jumping as much as 0.4 percent. The equity index has risen 1.1 percent this week as company earnings from Merck & Co. to Sprint Corp. topped analyst estimates and the Federal Reserve said it would continue to trim the pace of bond purchases as the economy gains momentum. Dow Jones Industrial Average contracts dropped 10 points, or 0.1 percent, to 16,478 today.

“This is the first strong confirmation we’re unwinding some of the winter weakness,” Anthony Valeri, a market strategist with LPL Financial Corp. in San Diego, said in a phone interview. The firm oversees $350 billion. “It’s a pretty strong report that suggests the Fed will continue to taper.”

Employers boosted payrolls in April by the most in two years and the jobless rate plunged to 6.3 percent as companies grew confident the U.S. economy is emerging from a first-quarter slowdown.

The 288,000 gain in employment was the biggest since January 2012 and followed a revised 203,000 increase the prior month that was stronger than initially estimated, Labor Department figures showed today in Washington. The median forecast in a Bloomberg survey of economists called for a 218,000 advance. Unemployment dropped from 6.7 percent to the lowest level since September 2008 as fewer people entered the labor force. Wages and hours worked were stagnant.


Perking Up

The Fed said this week that the economy is perking up after stalling last quarter and the job market is improving. The Federal Open Market Committee pared its monthly asset-buying to $45 billion, its fourth straight $10 billion cut, and said further reductions in “measured steps” are likely.

Gross domestic product rose at a 0.1 percent annualized rate from January through March, compared with a 2.6 percent gain in the prior quarter, the Commerce Department said earlier this week.

Data this week showed consumers and companies were shaking off winter doldrums. Household purchases, which account for about 70 percent of the economy, climbed 0.9 percent in March, the most since August 2009, the Commerce Department said yesterday. Incomes increased by the most in seven months. Also yesterday, data from the Institute for Supply Management showed factories added employees in April at the fastest pace in four months. Manufacturing expanded the most this year.


Factory Orders

A separate report today may show factory orders increased 1.5 percent in March after a 1.6 percent gain in the previous month, according to the average economist forecast.

The S&P 500 has climbed 1.9 percent this year and yesterday closed 0.4 percent away from its all-time high reached April 2. The Dow closed at a record on April 30.

Jeremy Grantham, chief investment strategist at Grantham, Mayo, Van Otterloo & Co., says the next bubble in U.S. stocks appears to be about 20 percent away. Equities would enter a bubble with the index at 2,250, he wrote, citing statistical analysis of earlier periods in which the prices of shares and other assets surged and then tumbled. The S&P 500 may start advancing there in October and exceed that level by the presidential election in November 2016, he wrote.

Chevron Corp. and Estee Lauder Cos. are among S&P 500 companies reporting earnings today.


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