Blog : Jobs: Bouncing Around the Bottom

by Ed Zwirn on September 6th, 2013

This morning's jobs report was nothing to write home about.

It's true: The unemployment rate has declined slightly, from July's 7.4% to August's 7.3%, but the good news ends there.

Of more immediate interest to penny stock investors are the paltry figures for jobs creation announced this morning. Nonfarm payrolls rose by a less-than-expected 169,000 last month, while private payrolls rose by a meager 159,000.

To make matters worse, the nonfarm payroll number for July, which had been pegged the last time around at 162,000, was downwardly revised to 104,000, a number far below that needed to signal a recovery in the overall labor market.

The "headline" unemployment rate figure notwithstanding, I don't think there is anybody out there that can claim that the employment situation is doing much more than bouncing around the bottom. We may be avoiding another recession for now, but job creation is nowhere near the robust level that should trigger a tapering of the Federal Reserve's $85 billion monthly bond buying program.

Assuming the Fed avoids any tapering announcement on Sept. 18,  the window for any Fed tightening ahead of the end of Chairman Ben Bernanke's term in January has narrowed, meaning that investors in everything from penny stocks and other small caps to the 30 blue-chip components of the Dow Jones Industrial Average should continue to benefit from a flow of money into the market.

Looking ahead, Sept. 13's producer price index report and Sept. 17's consumer price index update are the next major headline numbers expected to provide clues to thestate of the U.S. domestic economy. The overall PPI held steady last month, while the more important "core" figure showed a 0.1% increase. Consumer prices rose by 0.2% in July.

Factor in the significant headwind caused by the probability that a U.S. military strike is in the offering soon and the possibility that the conflict that ensues as a result of this strike could get out of hand, and you can see that the Fed is in a sticky position: Not only do the economic numbers released recently argue against any perception that economic growth is accelerating, but the war clouds rising over the world might make it difficult, to say the least, for the U.S. central bank to lower the boom on what growth is going on.

Penny stock investors should note that these latest developments raise the stakes involved in the Sept. 18 announcement by highlighting the extent to which the stock market is dependent upon the Fed's continuing to pump up the volume. For this reason, any tapering announcement on that date, if only because it seems less likely as of this morning, should prove to be a huge disappointment.