This boost may be all of the savings from lower gasoline prices showing up, which has left an extra $330 per month for what I’ll call the typical family – driving two cars and using a tank each a week. The November retail spending figures were quite subdued, so the good sales numbers from the weekend and into Monday is showing the pent up demand that was out there. It appears the cash is available too, as Black Friday’s credit-card transactions were down significantly from the year-ago period.
That said we shouldn’t expect consumer activity to go on a sustained roll, as the job market will remain weak for a while, but December is shaping up to surpass expectations at this early stage. Spending rose 7.2% per shopper on Friday and with Monday’s sales up 15%, from the year-ago period, it’s showing we may just see a transitory bounce in activity. We’ll have to wait a couple of weeks to see whether consumers have completed their Christmas shopping or there is more to come. In any event, the fact that sales were up even as retailers have engaged in aggressive discounting illustrates volumes are strong.
Market Activity for December 3, 2008
Crude-Oil
Crude price fell even as stockpiles unexpectedly declined – the first drawdown in nine weeks. Supplies were expected to rise by one million barrels, but fell 456,000 to 320.4 million barrels for the week ended November 28.
The price of oil also defied a statement from Qatar’s oil minister saying OPEC will “definitely” cut output at its next meeting in Algeria on December 17. Trading in the commodity was probably affected by the very weak ISM service-sector report and the employment scenario (both discussed below) and the likelihood that demand will remain subdued.
The Economy
The ancillary employment surveys we touched on yesterday, the Challenger and ADP reports, to no surprise, showed the labor market deteriorated in November.
The Challenger Job Cuts survey (via the outsourcing firm Challenger, Gray and Christmas) reported the rate of layoff announcements accelerated in November as 181,671 job cuts were announced versus 112,884 in October – a 60% increase. The chart below shows the percentage change from November 2007 – up 148.4%.
Layoff announcements were led by the financial sector (91,350 job cuts announced last month), the highest monthly total in the survey’s 16-year history.
Shortly thereafter ADP Employer Services released their Employment Change Survey, showing 250,000 payroll positions were cut in November – the expectation was for 205,000. The October reading was revised lower to show a 179,000 decline from the 157,000 figure initially estimated last month.
ADP only tracks the private sector, but we haven’t seen jobs cuts from government, which is typically the case – and I suspect public-sector employment will rise over the next few years – so only the private sector applies here with regard to layoffs. ADP has underestimated monthly job losses so far this year, so it’s very likely we’ll get a decline of more than 300,000 via the official government figures on Friday.
Financial and manufacturing companies are leading the cutbacks. You can bet big cuts are coming from the basic material industry as they ramped up employment a year ago due to soaring commodity prices and are now slashing as those prices have collapsed and mining activity and metals production declines.
In a separate report, the Institute for Supply Management’s (ISM) service-sector survey fell to the lowest level in its 11-year history, coming in at 37.3 for November after an already depressed level of 44.4 the month prior. (Important to notice that the index has a short history so we can’t gauge it against the deeper recessions like 1974 and 1981-82. The 1990-91 recession was a cakewalk and the 2001 downturn was just that as the period never recorded two-consecutive negative GDP readings.
On a positive note, the fact that holiday shopping has gotten off to a start that surpasses 2007 levels we may just see a good rebound in service-sector activity when the December reading is released.
Further one of the main comments from the survey’s respondents was “temporary targeted budget freezes.” This indicates many firms remain in wait and see mode, which is certainly much better than the alternative. Maybe they are wrong and activity continues to decline, which is the likely scenario. However, judging all that has occurred over the past couple of months, I do not think it is beyond the realm of possibility that things may snap back quite strongly from these levels. This does not mean the economy will suddenly pull out of a recession-type scenario, but activity may rise from these very depressed levels quite quickly. We can’t have a lot of confidence on this front right now, but I do kind of get that feeling.
The survey’s employment index is an additional indication that Friday’s jobs report will show a payroll decline that is greater than 300,000.
European Central Banks
The BOE (Bank of England) slashed the bank rate (the equivalent to our fed funds rate) by 100 basis points to 2.00%. The BOE stated consumer spending and business investment have stalled. This is the lowest level on the bank rate since Churchill’s victory to become Prime Minister for the second time (1951).
The ECB (European Central Bank) is expected to cut rates today also as they bring their monetary policy more in line with ours here in the U.S.
Have a great day!
Brent Vondera, Senior Analyst
No comments:
Post a Comment