U.S. stocks tumbled yesterday after the weekly report on jobless claims showed the figure is not abating; some had hoped once adjustments to the government’s program to extend benefits began to set in the reading would ease. Now that the figure remains above the 400k level, even as the Bureau of Labor Statistics says the response to that government program has peaked, it’s leading many to believe claims are simply rising because job losses are accelerating, not solely because of the increase in eligibility.
This morning we get the jobs data for August – a decline will mark the eight-straight month of losses, although they have been mild to this point averaging just 66,000 per month. The jobless claims numbers offers pretty good evidence those losses will move to 80,000-100,000 per month.
Up to now the labor market weakness has been more about the lack of new openings rather than layoffs on a large scale. I think the situation will remain that way, but it does look like we’ll get a couple of months here and there that cause people to worry layoffs will rise substantially.
Market Activity for September 4, 2008
All 10 major industry groups got hammered yesterday, with financial and basic material shares performing the worst down 4.69% and 3.83%, respectively. The best performers, of course on a relative basis, were consumer staple and utility shares, which lost 1.13% and 1.21%, respectively – no surprise that those sectors were pressured the least when concerns over global growth arise.
It’s been interesting to watch commodities – as measured by the Commodity Research Bureau – fall 21% since July 15, yet stocks have remained essentially flat. The CRB is down 8% since August 21 and the broad market has down as well, off by 3.2% since that date. Ask someone two months ago how stocks would perform with this level of decline in commodity prices and there’s little doubt most would say a rally would ensue – myself included. But global growth concerns have taken over, which makes it tough for stocks to catch a bid. The S&P 500 remains 2% above the July 15 multi-year low.
And speaking of commodities, crude-oil price fell yesterday even as the weekly energy report showed stockpiles decreased by 1.9 million barrels in the week ended August 29. Again, worries over global growth have now taken over to offset supply concerns, hence the dip in prices even though crude inventories are now six million barrels below the 12-month average.
Expectations were for a 450,000 barrel increase in supplies. I’m not sure what logic drove that estimate, but one wonders where these analysts have been over the past week – maybe they believed Mr.Gustav would be kind enough to deliver supplies to the ports and terminals.
In international news, both the ECB (European Central Bank) and the Bank of England decided to keep their benchmark interest rates unchanged (4.25% for ECB and 5.00% for BOE) even as EU growth has flat-lined and many call for them to cut. Yet, inflation remains elevated in the Eurozone – close to a 16-year high – so they are holding steady for now.
The relevance of this weak EU growth with regard to the dollar is that caused traders to question why exactly they had pushed the euro to such a lofty level – some of those funds have flowed into the dollar as a result. Still, the interest rate differential remains in the EU’s favor, but many assume it is just a matter of time until the ECB does in fact cut their benchmark rate and thus narrow that differential.
Still, as we’ve talked about for a couple of weeks now we need to see the Dollar Index hit 80 before getting to excite. For now, we’ve got a great trend going.
On the economic front, the Labor Department reported that Q2 productivity surged 4.3% at an annual rate, revised up from the previous estimate of 2.2%. A large upward revision in output combined with a downward revision to hours worked led to the significant upward revision to productivity. (Productivity measures the increase in output per hour worked.)
Just to put this reading into perspective, a number above 2.5% is considered large. Non-financial sector productivity came in at a rip-roaring 5.6% annual rate. That reflected a 3.8% rise in output and a 1.7% fall in hours worked.
These levels of productivity are hugely beneficial, especially now as we deal with energy prices that have climbed roughly 50% across-the-board over the past 12 months. U.S. productivity has increased a powerful 3.38% over the past 12 months.
Unfortunately, within the manufacturing sector, productivity declined 2.2% at an annual rate as output fell 3.7%, while hours worked dropped just 1.5%. This marked the largest quarterly decline in manufacturing productivity since a 2.5% decline in Q2 1989. Unit labor costs in the sector jumped 6.2% -- boosted by a 9.0% rise within the durable goods sector.
In total, compensation per hour has increased 4.0% over the past 12 months, which is helpful but lags the current pace of inflation.
In a separate report, the Labor Department reported that initial jobless claims for the week ended August 30 rose 15,000 to 444,000. For the reading to remain at these levels, it obviously points to more job losses ahead. Some, including myself, were anticipating this figure to fall as the government’s program to increase unemployment assistance wore off, or at least that the response from this program had peaked. The fact that the reading has not come lower illustrates there’s a good possibility we’ll see monthly job losses increase to 80-100k over the next several months. (In the seven months in which the job market has shed positions, we’ve averaged 66,000 monthly losses.)
The four-week average of jobless claims did tick down, but just barely, and remains elevated. I will point out, however, that when you view the chart below keep in mind that the labor market is 12 million stronger than it was 10 years ago and 32 million stronger than it was 20 years back. Point is, jobless claims of 445,000 is not what it used to be at lower job-market levels. Nevertheless, this is well-higher than we want it to be.
Lastly, the Institute for Supply Management issued its latest look at the service-sector as its nonmanufacturing composite index (which equal weights the survey’s business activity, employment, new orders and supplier delivery indexes) showed activity accelerated a bit. The reading rose to 50.6 in August from 49.5 in July. Over the past six months the index has averaged 50.3 – 50 is the cut line between expansion and contraction.
The business activity index rose nicely to 51.6 from 49.6 in the previous month.
The employment index fell to 45.1 from 47.1, which is another sign today’s jobs report may come in weaker than expected.
The prices paid index fell to 72.9 from the extreme level of 80.8 yet remains higher than the average of the past two quarters. A year ago the prices paid index was running in a range of 60-65.
All eyes will be on the August jobs report, released at 7:30 CT. We’ll also get the mortgage delinquency figure for the second quarter at 9:00.
Have a great weekend!
Brent Vondera, Senior Analyst
This morning we get the jobs data for August – a decline will mark the eight-straight month of losses, although they have been mild to this point averaging just 66,000 per month. The jobless claims numbers offers pretty good evidence those losses will move to 80,000-100,000 per month.
Up to now the labor market weakness has been more about the lack of new openings rather than layoffs on a large scale. I think the situation will remain that way, but it does look like we’ll get a couple of months here and there that cause people to worry layoffs will rise substantially.
Market Activity for September 4, 2008
All 10 major industry groups got hammered yesterday, with financial and basic material shares performing the worst down 4.69% and 3.83%, respectively. The best performers, of course on a relative basis, were consumer staple and utility shares, which lost 1.13% and 1.21%, respectively – no surprise that those sectors were pressured the least when concerns over global growth arise.It’s been interesting to watch commodities – as measured by the Commodity Research Bureau – fall 21% since July 15, yet stocks have remained essentially flat. The CRB is down 8% since August 21 and the broad market has down as well, off by 3.2% since that date. Ask someone two months ago how stocks would perform with this level of decline in commodity prices and there’s little doubt most would say a rally would ensue – myself included. But global growth concerns have taken over, which makes it tough for stocks to catch a bid. The S&P 500 remains 2% above the July 15 multi-year low.
And speaking of commodities, crude-oil price fell yesterday even as the weekly energy report showed stockpiles decreased by 1.9 million barrels in the week ended August 29. Again, worries over global growth have now taken over to offset supply concerns, hence the dip in prices even though crude inventories are now six million barrels below the 12-month average.
Expectations were for a 450,000 barrel increase in supplies. I’m not sure what logic drove that estimate, but one wonders where these analysts have been over the past week – maybe they believed Mr.Gustav would be kind enough to deliver supplies to the ports and terminals.
In international news, both the ECB (European Central Bank) and the Bank of England decided to keep their benchmark interest rates unchanged (4.25% for ECB and 5.00% for BOE) even as EU growth has flat-lined and many call for them to cut. Yet, inflation remains elevated in the Eurozone – close to a 16-year high – so they are holding steady for now.
The relevance of this weak EU growth with regard to the dollar is that caused traders to question why exactly they had pushed the euro to such a lofty level – some of those funds have flowed into the dollar as a result. Still, the interest rate differential remains in the EU’s favor, but many assume it is just a matter of time until the ECB does in fact cut their benchmark rate and thus narrow that differential.
Still, as we’ve talked about for a couple of weeks now we need to see the Dollar Index hit 80 before getting to excite. For now, we’ve got a great trend going.
On the economic front, the Labor Department reported that Q2 productivity surged 4.3% at an annual rate, revised up from the previous estimate of 2.2%. A large upward revision in output combined with a downward revision to hours worked led to the significant upward revision to productivity. (Productivity measures the increase in output per hour worked.)
Just to put this reading into perspective, a number above 2.5% is considered large. Non-financial sector productivity came in at a rip-roaring 5.6% annual rate. That reflected a 3.8% rise in output and a 1.7% fall in hours worked.
These levels of productivity are hugely beneficial, especially now as we deal with energy prices that have climbed roughly 50% across-the-board over the past 12 months. U.S. productivity has increased a powerful 3.38% over the past 12 months.
Unfortunately, within the manufacturing sector, productivity declined 2.2% at an annual rate as output fell 3.7%, while hours worked dropped just 1.5%. This marked the largest quarterly decline in manufacturing productivity since a 2.5% decline in Q2 1989. Unit labor costs in the sector jumped 6.2% -- boosted by a 9.0% rise within the durable goods sector.
In total, compensation per hour has increased 4.0% over the past 12 months, which is helpful but lags the current pace of inflation.
In a separate report, the Labor Department reported that initial jobless claims for the week ended August 30 rose 15,000 to 444,000. For the reading to remain at these levels, it obviously points to more job losses ahead. Some, including myself, were anticipating this figure to fall as the government’s program to increase unemployment assistance wore off, or at least that the response from this program had peaked. The fact that the reading has not come lower illustrates there’s a good possibility we’ll see monthly job losses increase to 80-100k over the next several months. (In the seven months in which the job market has shed positions, we’ve averaged 66,000 monthly losses.)
The four-week average of jobless claims did tick down, but just barely, and remains elevated. I will point out, however, that when you view the chart below keep in mind that the labor market is 12 million stronger than it was 10 years ago and 32 million stronger than it was 20 years back. Point is, jobless claims of 445,000 is not what it used to be at lower job-market levels. Nevertheless, this is well-higher than we want it to be.
Lastly, the Institute for Supply Management issued its latest look at the service-sector as its nonmanufacturing composite index (which equal weights the survey’s business activity, employment, new orders and supplier delivery indexes) showed activity accelerated a bit. The reading rose to 50.6 in August from 49.5 in July. Over the past six months the index has averaged 50.3 – 50 is the cut line between expansion and contraction.
The business activity index rose nicely to 51.6 from 49.6 in the previous month.
The employment index fell to 45.1 from 47.1, which is another sign today’s jobs report may come in weaker than expected.
The prices paid index fell to 72.9 from the extreme level of 80.8 yet remains higher than the average of the past two quarters. A year ago the prices paid index was running in a range of 60-65.
All eyes will be on the August jobs report, released at 7:30 CT. We’ll also get the mortgage delinquency figure for the second quarter at 9:00.
Have a great weekend!
Brent Vondera, Senior Analyst
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