The ADP report came out this morning, showing a loss of 39,000 jobs in the private sector against expectations of new job creation of 50,000. Data types, optimists and the bulls were surprised by the results. ADP said there “is no momentum in employment.”
The rational among us ask – why?
Job creation in the private sector is dependent on a) credit b) optimism about growth driving a need for new workers c) purchases of products and services by governments d) purchases of products and services by consumers e) purchases of products and services by business and f) purchases of products and services by international customers.
And this means the job creation engine is oh for six when you look at all these factors.
Credit – there still ain’t none for small business, the creator of two thirds of all new private sector jobs.
Optimism – I use ChangeWave surveys as my core set of data and their corporate sales survey says optimism is waning, something echoed by other data suppliers.
Government Spending – State and local governments are making savage cutbacks in spending, between 44 and 48 in deficit as we speak.
Consumer Spending – Spending fell off sharply in September, as shown in ChangeWave and other surveys, and will not improve this quarter.
Business Spending – This is up slightly but the traditional motor, IT spending, is taking a hit according to ChangeWave and other surveys as well as forecasts from companies such as Intel (INTC) and Cisco (CSCO).
Exports – I just returned from Europe and a leading merchant banker who provides short term financing for the movement of products around the world said “Europe is not retreating, it is dead.” I could see the same, heard it at bars and from taxi drivers, who are almost as good a source as merchant bankers.
The bottom line: The double dip is here. If not in the data then in the real world, and the market seems to like this for it insures more liquidity from central bankers. That being said, stocks trading based on real world earnings, such as industrial cyclicals, luxury good retailers and IT companies, are in for a rough ride.