Big drop on the open.
S&P now down 18.79 (-1.27%)
From Dick.
Payroll Drop Might Re-Ignite Recession Fears
Last Update: 07-Sep-07 08:54 ET
August nonfarm payrolls fell 4,000. This is a weak number, but it does not mean a recession is imminent.
Economists had forecast an increase of about 110,000 for payrolls, and market talk had been of an increase of closer to 75,000. This was much weaker. Stock futures have sold off as a result over concerns about the economic outlook. A lower open is indicated.
The reaction is legitimate. Slower payroll growth certainly means less economic growth. It may be, however, that businesses were simply temporarily cautious as a result of the financial market turmoil. And, flat payroll growth correlates with 2% real GDP growth due to the long-term trend of 2% productivity growth.
A modest rebound in payroll growth may well occur in the months ahead. With continued moderate growth in consumer spending and business investment, this means that third and fourth quarter real GDP forecasts are likely to hold in the 2% to 2 1/2% range.
That isn't great growth, but it isn't a recession either.
Hourly earnings were up 0.3%, in line with expectations. The year-over-year increase held steady at 3.9%. That is a bit higher than the Fed would like, but the trend is down from six months ago when the increase was over 4%.
The weak employment data also has a silver lining. It increases the likelihood that the Fed will cut rates at the September 18 FOMC meeting. It gives them more cover for acting.
There is no reason to panic over the weak employment data. The Fed has plenty of bullets to use to keep the economy on a moderate (but below long-term trend) growth path. We don't see a market crash. But the earnings outlook is only modestly bullish and there are certainly risks. That is why our view remains Neutral, as it has been since June 25.
- - Dick Green, Briefing.com
Socrates: "Democracy, which is a charming form of government, full of variety and disorder, and dispensing a sort of equality to equals and unequaled alike."
Big drop on the open.
S&P now down 18.79 (-1.27%)
With so many TSPers going into stocks, I wonder if we'll have what I call the TSP effect. That would be a rally at the close.
100 G
RSI - Relative Strength Indicator DMA - day moving average
Even if a lot more of us did it, we are still negligible in the overall real markets.
Ebbey-ites
(is that a word, followers of Ebb are Ebb-ey-ites?)
are not numerous enough to make a dent in anything.
I believe that members of the FMOC have access to key economic data 2 days before it is released. If the job numbers we got this morning were known to them on Wednesday, what do we make of Fed members assuring us YESTERDAY that the overall economy is not affected?
Trading, in its simplest form, is the process of capturing the disconnect between perception and reality.
Don't listen to what the Fed members have to say, only watch what they do. Remembere they are not your friends.
3pm EST, double top in QID, S&P bounces off 20 dma, stocks appear to be reversing on heavier volume. I guess they were suckin' in the shorts. I hope the positive momentum continues into the close. Still a good sign even if we close on the the 20 dma.
Weekly Wrap
Last Update: 07-Sep-07 16:38 ET
After starting the holiday-shortened week on a strong note, U.S. stocks finished the week lower amid growing concerns that problems in the housing and credit markets are spreading to the job market and weighing on the overall economy.
The stock market rallied on Tuesday – the first day of trading after Monday’s Labor Day holiday – with all three major indexes rising more than 1%, after a report from the Institute for Supply Management showed manufacturing activity expanded in August. The ISM index national survey on manufacturing conditions dipped to 52.9 last month from 53.8 in July. That was slightly below expectations, but remained steady at a level that reflects moderate growth.
Meanwhile, favorable reports on Apple (AAPL) and Yahoo! (YHOO) helped boost the Technology sector and the tech-heavy Nasdaq index, which jumped 47 points, or 1.81%, during the session.
Stocks retraced their gains on Wednesday, however, due to further signs of weakness in the U.S. housing market. The market’s concerns about the health of the economy were exacerbated by the National Association of Realtors’ Pending Home Sales report, which showed pending sales of previously owned homes fell by a record 12.2% in July to its lowest level in six years.
Also, Costco (COST) reported disappointing same store sales results for August, reflecting increasing pressure on U.S. consumers and further weighing on investor sentiment.
Stocks reversed course on Thursday, as weekly jobless claims and second quarter productivity and unit labor costs came in stronger than expected. Meanwhile, several retail chains, including Wal-Mart Stores (WMT) and Target Corp. (TGT), reported monthly sales figures that topped analysts’ expectations, and the ISM Services index held steady at 55.8 and still pointed to growth in the services sector.
Still, trading was light as investors awaited the Labor Department’s August employment report on Friday, which proved disappointing and exacerbated worries about the health of the economy under the weight of a deteriorating housing market and credit market problems.
The Labor Department’s report showed that payrolls fell by 4,000 in August, the first decline since August 2003 and well below analysts’ expectations of a gain of 110,000, while the unemployment rate held steady at 4.6% as expected. The negative impact of the payrolls number was exacerbated by the downward revision to both the June and July numbers totaling 81K. The other components of the jobs related data, average work week and hourly earnings, were in line with expectations and had little impact.
The major averages plummeted in the wake of the report, with the Dow Jones industrials falling nearly 250 points, or 1.87%, during Friday's session. The broader S&P 500 index fell 25 points, or 1.69%, while the Nasdaq composite index declined 49 points, or 1.86%.
For Investors, the report provided further insight into the economy’s performance in August amid persisting weakness in the housing market and turmoil in the credit markets, triggered by the meltdown in the sub-prime lending industry.
The soft trend in payrolls probably reflects business caution given the turmoil in the financial markets, but in our opinion does not signal a recession. The payroll trend is clearly weak, but even flat payroll growth correlates to 2% real GDP growth given the long-term trend of 2% productivity growth. Weaker economic growth is of concern, but the weak payroll number will increase expectations that the Fed will lower interest rates at the September 18 FOMC meeting. It provides additional cover for the Fed to take that action.
--Richard Jahnke, Briefing.com
http://www.briefing.com/GeneralConte...terHoursReport
Socrates: "Democracy, which is a charming form of government, full of variety and disorder, and dispensing a sort of equality to equals and unequaled alike."
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