Posts Tagged ‘Dud’
Wednesday, June 6th, 2012
June 4, 2012
by Liz Ann Sonders, Senior Vice President, Chief Investment Strategist, Charles Schwab & Co., Inc.
- The June 1 employment report was a dud, but other economic reports were a bit rosier.
- The eurozone debt crisis and slowing global growth remain the greatest risks.
- A muddle-through economy continues to be the most likely path.
I won’t try to put lipstick on the pig that was last Friday’s May jobs report, but I will try a little lip gloss. Somewhat lost in the mire of the dire reaction to the report were several other more-positive readings on the economy. That’s testament to the likelihood that there are many more drivers to today’s malaise than just jobs growth, or lack thereof. It seems clear we’re in the midst of the third consecutive mid-year economic slowdown, driven by similar forces, most dominantly the eurozone debt crisis.
Questions about recession risk are as rampant now as they were last fall, but I remain in the camp that believes we will avoid one in the short-term. Part of the reason is not rosy: as the saying goes, if the plane never got off the runway, a crash is much less likely. It’s the “blessing” and the curse of a muddle-through economy. I wouldn’t bet the farm on a recession being avoided and I have as cloudy as crystal ball as anyone, but that remains my view.
First, the lip gloss
The weakness in the employment report was largely across the board. Payroll employment was up a meager 69,000, about half the consensus expectation, while the unemployment rate ticked up a tenth to 8.2%. The weakness was largely concentrated in three areas: business services, leisure and hospitality, and construction.
The weakness in construction probably reflects a “give-back” from the exceptionally strong, warm-winter-weather period in the beginning of the year. The other two segments tend to see their hiring lag movements in energy prices, and given their surge during the first four months of this year, the weakness is not terribly surprising. The good news is that energy prices have plunged since then.
There are some other caveats, too. The household measure of employment, from which the unemployment rate is derived, showed an increase of 422,000 and an increase in the number of participants in the labor force. The latter explains why the unemployment rate ticked up, but may also show some increased confidence about landing a job. However, it also points to expiring unemployment insurance benefits, which is forcing some participants back into the labor pool.
It’s not all bad
We also know that many of the leading indicators for job growth remain healthy, including:
- Employment components of the Federal Reserve’s regional manufacturing surveys
- Hiring plans, sales, profits and jobs-hard-to-fill at multi-year highs
- Jobs-hard-to-get at multi-year lows
- Job openings (JOLTS survey) at a four-year high
- Average hours worked at a 20-year high
- National Federation of Independent Business plans to hire at a cycle-high
Friday also brought the latest Institute for Supply Management (ISM) manufacturing index, which registered a reading of 53.5—still well above the 50 reading that separates an expansion from a contraction, and consistent with economic growth remaining comfortably above recession territory. On top of that, the new-orders component of the ISM index (both the index overall and the new orders component are key leading indicators) is not only at a cycle-high, but the “prices paid” component, measuring inflation, has collapsed in the past month. As noted by Wolfe Trahan, the best US gross domestic product (GDP) readings have generally come in the wake of large declines in inflation. And stocks generally do well when leading indicators of growth (new orders) are stronger than inflation pressures (prices paid).
Wall of worry is back
Sentiment has also improved markedly over the past month, thanks to May’s weakness. When I last wrote about sentiment in early April we highlighted the market’s elevated risk of a correction due to overly-optimistic sentiment (a contrarian indicator). As you can see below, that sentiment has reversed and is approaching territory that’s usually supportive for stocks. But frankly, I’d feel better if sentiment got even more pessimistic. We may need to see a little more capitulation before the market can find its legs.
Source: FactSet, Ned Davis Research (NDR), Inc. (Further distribution prohibited without prior permission. Copyright 2012 (c) Ned Davis Research, Inc. All rights reserved.), as of May 29, 2012.
Longer term, we remain optimistic about the prospects for both the US economy and stock market relative to the rest of the globe. As I’ve noted consistently, we have a “renaissance” story unfolding here in the United States; particularly within manufacturing and domestic energy. Housing is also becoming a major tailwind (more to come on that in future reports.)
I got back from a trip to China 10 days ago and my conversations in Hong Kong and Shanghai largely supported my view that even in the face of a “muddle through” economic-growth environment, from which this country is unlikely to exit any time soon, there are bright spots worthy of attention. In fact, maybe tellingly, nearly everyone with whom I had a conversation was more pessimistic than the consensus about China’s growth prospects but more optimistic than consensus about US growth prospects. And this was the sentiment of both local Chinese as well as US ex-patriots with business in China.
Tags: Bad Neighborhood, Blessing And The Curse, Charles Schwab, Chief Investment Strategist, China, Crystal Ball, Debt Crisis, Dud, Economic Reports, Economic Slowdown, Employment Report, Energy Prices, Eurozone, Global Growth, Last Friday, Liz Ann, Muddle, Payroll Employment, Senior Vice President, Unemployment Rate, Warm Winter Weather
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Friday, November 4th, 2011
Because while the prospect of democracy returning to Greece may have been killed (for now), the world is discovering that not only will nothing else be accomplished at the “No We Cannes’t” meeting, but the world will now be fully focused on Italy which unlike Greece, is not quite so easily fixable. Europe’s propose solution: make Italy an IMF protectorate. We give this plan exactly 24 hours before massive failure, and before attention returns to the top news of the week: the EFSF is a complete dud, and Europe will never be able to fund the €1 trillion bailout fund.
- BERLUSCONI SAYS ITALY AGREES TO EU MONITORING
- BERLUSCONI SAYS IMF TO CARRY OUT `CERTIFICATION’ EVERY 3 MONTHS
- BERLUSCONI SAYS ITALIAN DEBT HELD MOSTLY HELD BY ITALIANS – like Mario Draghi
- BERLUSCONI SAYS ITALY HAS NEVER HAD TROUBLE SERVICING DEBT
And in other headlines, confirming just how impossible any form of organized decision-making is in Europe, how ironic it is to think that Obama will ever say no to his banker masters, or just how happy China will be to bail Europe out after it is about to be snubbed all over again, here they are…
- U.S. SAYS MOST IMPORTANT FOR EU TO GIVE CRISIS PLAN MORE FORCE
- U.S. OFFICIAL SAYS NOT MUCH DISCUSSION OF SPAIN AT G20
- ITALY INVITES IMF PERIODIC ASSESSMENTS, U.S. OFFICIAL SAYS
- IMF TO HAVE INTENSIVE PROCESS IN ASSESSING ITALY, U.S. SAYS
- UIS. OFFICIAL SAYS IMPORTANT FOR CHINA TO TAKE THAT INITIATIVE
- US OFFICIAL SAYS G20 TO HAVE STRONG LANGUAGE ON CHINA FX POLICY
- US VERY COMMITTED TO MAKING BANKS STRONGER, OFFICIAL SAYS
- G-20 AGREEMENT COMPLEMENT TO EUROPEAN PLAN, U.S. OFFICIAL SAYS
- U.S. HAS BIG STAKE IN EUROPE CRISIS PLAN’S SUCCESS: OFFICIAL
Tags: Bailout, Berlusconi, Cannes, Complement, Crisis Plan, Decision Making, Dud, Efsf, Eurusd, G20, Happy China, Imf, Italians, Mario Draghi, Massive Failure, News Of The Week, Periodic Assessments, Protectorate, Top News, Trillion
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