The job market is cooling and the stock market has the blues. But this pause in the economic recovery comes with a few upsides.
Consider what's happened so far this year. The S&P 500 stock index hit a new all-time high on April 2, and even with the recent pullback, it's up about 8 percent for the year. Consumers have been encouraged by recent signs of strength in the economy, such as a rebounding housing market and better-than-expected outcomes on economic policy in Washington.
Weak job growth in March, when employers added just 88,000 jobs, wasn't a complete surprise, even though economists had been expecting the economy to add nearly 200,000 new jobs. The federal spending cuts that kicked in March 1 were bound to cause a pullback in hiring at some point, and some economists think job growth could be even weaker for the next two or three months.
Many Wall Street analysts have also been waiting for a stock-market correction of 5 to 10 percent, which may have already started. Stocks fell by more than one percent following the weak jobs news, and they're down nearly 2 percent so far in April.
Investors may retreat to the sidelines for a while, as they wait to see how deep and prolonged the hiring slowdown turns out to be. But if the economy takes are a breather, there will be at least three significant benefits:
A final dip in mortgage rates. Thirty-year mortgage rates bottomed out late last year at about 3.3 percent, the lowest level in modern times. They've since ticked up to about 3.6 percent, and most economists think the era of super-low rates may draw to a close at some point during the next few years. But a stock-market correction and worries about a flat-lining economy could give home buyers one last chance to lock in the deal of the century.
Mortgage rates are directly tied to the rates on long-term Treasury securities, and when investors get worried about the stock market and the overall economy, they buy more Treasuries. Stronger demand for those bonds means the U.S. government can pay lower rates to the investors who buy them. That in turn pulls down rates on all long-term loans, especially mortgages. So for a few weeks or even months, mortgage rates could fall back toward record lows.
Falling oil and gas prices. Oil prices also tend to fall when there are signs of weakness in the economy. Oil has been drifting upward this year, hitting $97 at the beginning of April. But oil prices have since fallen below $93 and will likely fall further if the stock market continues to decline.
That would be a nice break for drivers. Gas prices have risen by about 30 cents per gallon so far this year, according to AAA. That's not a huge spike, but it's enough to drain money that consumers might spend on other things. Plus, gas prices tend to have an outsized effect on consumer psyches, so even a modest dip in pump prices might restore a bit of confidence lost as consumers watch stocks slide and read gloomy headlines about a fresh job slump.
Prolonged easy-money policies. Investors have become obsessed over when the Federal Reserve might begin to rein in the easy-money policies that have been in place for more than four years. Some officials at the Fed itself even feel it's time to start tightening. It has to happen sooner or later, and once it does, it will be a game-changing event, because more than anything else, the Fed's policies have kept the stock market buoyant and propped up other parts of the economy.
A new spate of weakness in the job market will give the Fed all the reason it needs to keep the money flowing. So anybody worried about an end to the easy-money era can probably relax for a few months. But investors should guard aggressively against complacency, because friendly policies from the Fed may now be a limited-time offer.
Rick Newman's latest book is Rebounders: How Winners Pivot From Setback To Success. Follow him on Twitter: @rickjnewman.
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