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Jobs report signals more bad news for savings accounts

October 06, 2010

| MoneyRates.com Senior Financial Analyst, CFA

Employment growth is probably the best weathervane right now as to which way the economy is heading. According to a new jobs report out today, the arrow is pointing south.

Payroll company ADP released an employment report with discouraging news for the job market. This isn't just bad news for job seekers -- it also means that depositors in CDs, savings accounts and money market accounts are going to continue to suffer as well.

The latest jobs report

The ADP jobs report is based on a portion of its private-employer client base. Since the report represents about 13 percent of the civilian labor force, it is a pretty broad sampling of the U.S. job market. Unfortunately, the news isn't good.

According to ADP, private-sector employment declined by 39,000 jobs in September. This decline follows seven consecutive months of tepid employment growth and indicates that the economic recovery is stalling. ADP reports that employment growth is slowing across all major sectors, and among employers of all sizes.

Bad news for job seekers -- and CD, savings account and money market rates

Obviously, this is bad news for the unemployed and underemployed people who have been counting on employment growth to help them get back to work. Frankly, though, it is bad news for anybody with a stake in the U.S. economy, and that includes one segment of the population that has already suffered a great deal.

Over the past couple years, depositors in CDs, savings accounts, and money market accounts have seen interest rates on those accounts fall below 1 percent and start to approach zero. Interest rates are generally tied to the strength of the economy, and in today's environment perhaps more than ever. Significantly, the disappointing employment report from ADP sent bond yields sharply lower.

This doesn't necessarily mean that CD, savings account and money market rates will now fall some more -- they are already so low there isn't much further to fall. However it does suggest a longer wait before they start to recover.

Look for more developments when the Bureau of Labor Statistics releases its September jobs report this Friday.

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