Impact of Positive Jobs Data on ETFs

Zacks

The U.S. economic recovery is continuing, and it is now impacting the jobs market. The market saw a big increase in jobs for February, helping to erase the memories of a small rise in employment for January (A look at Housing and Retail ETFs after Recent Data).

In fact, the Bureau of Labor Statistics (:BLS) reported that the economy created 236,000 more jobs in February. This came in better than the expected increase of 160,000 new jobs.

It should also be noted that if the federal, state and local governments had continued to add average long-term jobs of 20,000 to 25,000 a month, the February job creation number would have risen to a robust 260,000.

Data from the last four months showed that the market has created more than 200,000 new jobs on average. Also, the unemployment rate dropped to 7.7% in February from 7.9% in January. This is the lowest drop since December 2008. Job gains were broad-based, led by the most hiring in the construction industry in six years.

However, the sequester still looms large on the economy and puts a question mark on further improvement in job numbers, especially in the months of April and May.

The Congressional Budget office has anticipated that the spending cuts would involve drop in government spending by $44 billion. The reduction could result in lower hiring in spring and summer (With Sequester Ahead, Are Defense ETFs in Trouble?).

So, it will be interesting to see how the market reacts going forward, and if this is the last of the great jobs reports, or if it is just the start of a solid employment trend.

ETFs Reacting to the News

In the ETF world, the solid employment data had a major impact on many of the funds in the Friday trading session. While ETFs tied to U.S. equities and the dollar rallied on the news, ETFs related to bonds and precious metals inched down.

Strong economic data had the SPDR Dow Jones Industrial Average ETF (DIA) extending its strong rally in the Friday trading session. The ETF posted a gain of 0.6%, pushing the total gain up to 7.5% for the year.

Meanwhile the dollar climbed higher after the U.S. government reported a strong gain in jobs for February. This led to a rise in PowerShares DB US Dollar Index Bullish (UUP) ETF which climbed 0.6% (Is the Dollar ETF About to Surge?).

While the equity and the currency market posted solid gains on the news, ETFs tied to U.S. bonds like the iShares Barclays 20+ Year Treasury Bond Fund (TLT) slid more than 1%.

Also, safe haven assets like gold posted a major fall in prices after the economy showed momentum attributable to rising U.S. job data. ETFs tied to U.S. precious metals, like GLD, also slipped, suggesting that safe haven demand was lowered after the impressive report.

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