By Carlos Guillen
This has been quite a week of trading, but at the end equities finished the Friday trading session with some gains, as improving consumer sentiment here at home and as encouraging data points from China came together to assuage the rising fears from the upcoming fiscal cliff and from the European debt crisis.
Perhaps the most encouraging item this week was that consumer sentiment landed better than expected, reaching the highest level in more than five years. The University of Michigan Consumer Sentiment November preliminary result landed at 84.9, which was higher than the Street's expectation of 83.0, increasing from the 82.6 reached in October. The result represented the highest reading since July 2007, before the recession had even begun. It is apparent that consumers' sentiment continues improving as they are finding their current financial positions to be improving, as an increasing number have been reporting recent income gains. Improvements in the housing markets are also positively contributing to the positive feelings of consumers. The fact that the jobs backdrop appears to be slowly improving may also be giving a stronger sense of hope to consumers.
Also encouraging was that consumers' outlook increased for a third consecutive month. The expectations index ramped higher, increasing to 80.8 from 79.0. Consumers appear to continue seeing improvement in the national economy and, more importantly, in the jobs market during the year ahead. While consumers still expect inflation, they expect this to attenuate in the near term. They project prices will rise 3.0 percent over the next 12 months, compared with 3.1 percent in the prior survey. Over the next five years, Americans expect a 2.8 percent rate of inflation, flat with 2.8 percent in the previous report.
Taking a look at the Job Openings and Labor Turnover Summary, or JOLTS report posted on Tuesday, we saw fewer jobs available in our economy during September. The highlight of the report was that the number of available jobs in the U.S. declined a bit, providing some evidence that the jobs situation may not improve moving forward as companies are likely to cutting back openings in the face of slowing global economic growth and the looming so-called U.S. fiscal cliff of automatic tax increases and government cutbacks. The number of job openings in September was 3.56 million, down from 3.66 million in August, representing a 2.73 percent drop. At the moment the number of job openings still remains well below the 4.26 million openings when the recession began in December 2007; however, the number of job openings has increased 48.9 percent since the end of the recession in June 2009. Among the largest contributors to job openings in September were Education and health services, which totaled 697,000, and Professional and Business Services, which totaled 651,000.
Hiring decreased by 225,000 to 4.19 million, representing a 5.74 percent decline, and firings declined to 1.70 million from the 1.85 million posted in August, representing a 7.95 percent drop. This data comes after Friday's rather encouraging jobs number that showed an unemployment rate of 7.9 percent and an increase in nonfarm jobs of 171,000 in October.
It is also worth looking at the number of unemployed per jobs available, which has been on a down trend since the third quarter of 2009. However, most recently this ratio has been held fairly flat, showing very little room for improvement. So while there are less layoffs, there is also less hiring going on, and for those that currently have jobs, they are much more unlikely to quit in search for something else.
Putting pressure on markets in the middle of the week was news that European Union ministers were delaying the decision to provide the aid Greeks so desperately need. Even after having passed the Austerity plans required to get the next tranche of aid, Greece will now have to sit tight and wait longer until its European partners sign off the release of the aid, which was expected to occur next week Monday. Germany's Finance Minister Wolfgang Schaeuble said the euro zone is not yet in a position to make a decision on releasing the funds, as many in Greece had hoped.
Over in China, in the start of the week, the services industries showed a rebound from the slowest expansion in at least 19 months. According to the National Bureau of Statistics and China Federation of Logistics and Purchasing, the purchasing managers' index rose to 55.5 in October from 53.7 the previous month. On the other hand, a different services index released Friday by HSBC Holdings Plc and Markit Economics in Beijing showed a drop 53.5 in October from the 54.3 posted in September. Although the services data was conflicting in terms of its direction, it still demonstrated overall expansion in the world's second largest economy.
At the end of the week, it was very encouraging to see that both industrial production and retail sales landed nicely above economists' forecasts. In October, Chinese factory output increased 9.6 percent on a year-over-year basis, landing above the Street's consensus of 9.4 percent. Concurrently, retail sales increased 14.5 percent from the level reached in the prior month. So far it is becoming apparent that Chinese central banks' actions to boost their economy is working, but more encouraging is that inflation is not ramping out of control as it increased just 1.7 percent, giving the bank room for further easing.
Clearly, investors are continuing to be fearful of the upcoming fiscal cliff, which if left untouched will have the nation as a whole paying more than $600 billion of tax increases and spending cuts that will trigger automatically next year unless Congress acts. However, we believe that this will be resolved as no one will be that insane to allow the economy plunge into another recession just to prove a point.