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  • If Only The Jobs Were As Plentiful As Oil - By Jennifer Coombs

    The market pullback continued today, further dampening the NASDAQ's efforts to reach a new all-time high. However, the major indices, though still in the red, are making a slow crawl to the upside. The initial decline in equities was primarily due to some disappointing jobs numbers from the ADP jobs report; however the nail in the coffin had to be the Energy Information Administration's (NYSEMKT:EIA) weekly report on crude inventories. After several weeks of massive crude inventory builds, economists thought they were being conservative in suggesting that inventories would increase by 4.1 million barrels last week. Oh, how wrong they were. Crude inventories showed a build more than double that amount at 10.303 million barrels, resulting in yet again another 80-year high. The major equity indices took a sizable plunge following the release of this report.

    Otherwise, there were two major economic releases today that, once again, are pointing to some conflicting signals in the US jobs market. Firstly, the ADP national employment report gave a good indication that Friday's February payrolls from the Bureau of Labor Statistics (BLS) may fall short of expectations. ADP sees the February jobs market slowing, showing that private payrolls increased 212,000 in the month, which is 8,000 shy of consensus' estimate. However, ADP's report includes a huge upward revision for January's jobs to 250,000 from an initially reported 213,000. We don't expect today's numbers to have a profound impact on Friday's government data estimates. Economists are anticipating that the BLS will note that 225,000 jobs were created in February versus January's 267,000. When broken out, ADP estimates that service-providing industries will create 181,000 jobs in February versus 206,000 in January, with goods-producing industries up 31,000 versus 45,000 in the month prior. Further detail shows professional services were up 34,000 in February versus January's 49,000 with construction up 31,000 versus 45,000. Growth in the trade & transport sector is at 31,000 jobs, but notably down from 50,000 in January. Financial-related jobs added 20,000 in February which was higher than the 15,000 in January. However, like many of the manufacturing reports indicated, there was substantial weakness in the sector with only 3,000 jobs created versus 15,000 in January.

    Next, the Institute for Supply Management (ISM) actually noted a sizable increase in the number of service-producing jobs in February. For the month, ISM's composite index of the non-manufacturing purchasing managers index (PMI) increased to 56.9 compared to the upwardly revised 56.7 reading in January (from 56.5). The employment component in the services sector is a stand-out positive, jumping nearly 5 points to a 4-month high of 56.4. On the weak end were new orders, where growth was down by nearly 3 points to 56.7 which was the lowest reading since March 2014. Nevertheless, we still note that this is a very healthy and sustainable rate of growth for new orders, which tend to suffer in the winter months anyway. Supplier deliveries slowed further in February which added to the composite for the month, but like the manufacturing index, this is not due to rising demand, but rather companies replenishing inventories that dropped due to port issues on the West Coast and severe winter weather on the East Coast. The slowdown in deliveries is the reason behind a rise in inventories and a build in backlog orders. Pricing pressures, as they are in most reports these days, stayed flat due to low fuel costs. One big positive in today's report is the broad strength with 14 of the 18 surveyed industries reporting growth for the month. Growth was once again led by the accommodation & food services sector, which is likely getting a boost from discretionary spending due to a stronger jobs market and lower gas prices. In the contractionary column are both construction and mining, which have been weak for some time.

    Mar 04 1:28 PM | Link | Comment!
  • The World In Which We Live - By Jennifer Coombs

    In a day light with domestic economic data, we can always rely on the rest of the world to move our markets for us. The major indices pulled back to session lows after Israeli Prime Minister, Benjamin Netanyahu, addressed US Congress on the dangers of a possibly impending nuclear deal with Iran. The speech was arranged on the initiative of House Speaker John Boehner and was not authorized by the executive branch. In the end, the markets experienced further losses on fears that conflict in the Middle East may once again be at the forefront of many people's minds. All the worry, however, is giving oil prices a boost since more Middle East conflict fears typically equate to a pop in prices. Oil futures have returned above the $50 per barrel level, up more than 2% for the session so far. It isn't likely that today's speech will cut the long-term rally short, but it is further evidence of how fragile the market is to geopolitical headlines.

    The US market was virtually devoid of data and releases during today's session. However, Gallup reported an interesting reading for February with its Economic Confidence Index (ECI). The index edged lower to a reading of 1 in February from a score of 3 in January - both readings represent the first time economic confidence was in positive territory since Gallup began tracking confidence back in 2008. The index is the average of two components: Americans' ratings of current economic conditions and their views on whether the economy is getting better or getting worse. The index has a theoretical maximum of plus 100, if all Americans believe the economy is excellent or good and getting better; and a theoretical minimum of minus 100, if all Americans say the economy is poor and getting worse. Through February, 27% of Americans said the economy was "excellent" or "good" while 27% said it was "poor". This resulted in the current conditions component coming in at a reading of "0" in February versus "1" in January. Meanwhile, overall economic outlook score decreased by three points to "2", after 49% of Americans saying the economy is "getting better" and 47% "getting worse." The average of the two readings gives us the monthly ECI score of "1".

    According to Gallup, with experts predicting that gas prices will continue to rise into the spring, and assuming gas prices affect how Americans view the economy, it could be difficult for economic confidence to recover from this recent momentum without some significantly positive news in other parts of the US economy.

    Mar 03 1:59 PM | Link | Comment!
  • Mixed Messages So Far In Q1 - By Jennifer Coombs

    A series of positive mergers and acquisitions (M&A) news, as well as some encouraging economic data, is giving all the major equity indices an impressive lift during today's session. The NASDAQ managed to hit yet another 15-year intraday high, and officially crossed above the 5000-level. Remember, of course, that the all-time high for the NASDAQ was set back on March 10, 2000 at a price of 5048.62. With the way things are going, if no market pullback occurs, the NASDAQ should reach a new all-time high almost 15 years to the day it was first set.

    There was a whole slew of economic data released this morning, some of it mixed, but with a few very positive data points in our view. Firstly, personal income and spending were moderately healthy in January even after price effects were discounted. Personal income increased by 0.3% in January after growing 0.3% in December as well, however this was shy of consensus' estimate for a 0.4% increase. The wages and salaries component notably jumped during the month by 0.6% after a rise of 0.1% in December. On the other hand, personal spending actually slowed, declining by 0.2% for the month after a 0.3% decline in December. Durable goods spending declined by 0.1% in the month after a 1.4% decline in the prior month due to sluggish auto sales, while nondurables-spending dropped 2.2% in January after declining by 1.4% the month before, mostly due to lower gas prices. Additionally, weakness in current dollar spending was price related as price adjusted personal spending came in at 0.3%, following a 0.1% dip in December. This is actually a good start for first quarter gross domestic product (NYSE:GDP) in the PCE component. Personal savings as a percentage of income also increased for the month, rising by 5.5% in January from 5.0% in December. All in all, income growth was relatively positive in January; the consumer sector has fuel for spending, which is overall encouraging for retail sales. However, inflation is low and well below the Federal Reserve's target of 2.0% year-over-year inflation, meaning the Fed likely will stick with no interest rate hikes prior to June.

    Perhaps not surprising given the recent weakness in manufacturing reports, but construction spending outlays declined by a relatively large 1.1% in January after gaining by 0.4% in December. This number falls well below consensus expectations which were for a 0.3% boost. The decline for the month was primarily led by public outlays which dropped 2.6% after rebounding byt 1.7% in December. Private nonresidential construction spending declined 1.6% in January, after a 0.1% rise in December, while private residential spending rose 0.6% after increasing 0.7% the month before. However, on a year-over-year basis, total outlays were up 1.8% in January which was a bit slower than the 2.2% year-over-year increase in December. Overall, this report shows a softening in the overall construction sector, but there are notable gains in the housing component. We note that increased activity in this subcomponent suggests a fair amount of optimism among homebuilders and perhaps also a shortage in the supply of new homes available on the market. There's a definitive gain in the residential investment component but a decline in the nonresidential component, both of which are factored into GDP calculations.

    Lastly, as to be expected when taking into account the various Fed manufacturing reports, growth is visibly slowing in the Insistute for Supply Management's (ISM) sample on the manufacturing purchasing managers index (PMI) for February. The PMI index slowed to a composite reading of 52.9, which is well below the January reading of 53.5. February's reading denotes the slowest rate of growth since January 2014 when the polar vortex put a damper on manufacturing-related activities. For the month, new orders slowed 4 tenths to 52.5 which is the slowest rate of growth since May 2013 while production slowed 2.8 points to 53.7 which is the slowest rate of growth since February 2014. Also weak was employment, which slowed 2.7 points to 51.4 for its slowest growth rate since June 2013. Additionally, delivery times increased, which contributed positively to the index, but it is not considered a sign of strength in demand, but rather due to labor-related delays at West Coast ports and heavy snowfall on the East Coast. Input prices are down for a 4th straight month, reflecting lower oil prices. We note that the manufacturing sector has been uneven the last few months in large part due to weak foreign demand. A worrisome metric is the slowdown in employement, which could be negative for Friday's jobs report.

    Mar 02 2:22 PM | Link | Comment!
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