By Carlos Guillen
As it stands, stocks are trading in the winning territory, with the Dow Jones Industrial Average up over 30 points, but trading has been very volatile. Friday's jobs data was rather mixed, as the unemployment rate declined better than expected, but nonfarm jobs increments were shy of forecasts. And of course the saga with respect to escalating tensions in Syria continues.
The latest jobs data certainly served to increase discussions of Fed tapering as it did not give a clear argument as to which direction the Fed would take. According to the latest data from the Department of Labor, the unemployment rate in August was 7.3 percent, lower than the 7.4 percent reported for July and below the Street's consensus estimate of 7.4 percent. While a decreasing unemployment rate would be typically considered a positive action, the manner in which the rate declined was the discouraging aspect of the result. The household survey showed that those employed declined by 115,000 while those unemployed decreased by 198,000, which means that 313,000 workers moved out of the civilian labor force. Clearly, this was a disappointment, particularly since 36,000 workers had already moved out of the labor force in the prior month. The reason why the unemployment rate improved was those unemployed decreased at a faster rate than those employed, but as we said, both groups decreased because they moved out of the labor force. In essence, the unemployment rate result was not as favorable as it seemed; while it did decline 11 basis points, it was partially assisted by the fact that a large number of people threw in the towel and removed themselves from the work force. Next month, if this situation reverses, that is if those not in the labor force decide to join the work force, we can certainly expect to see a strong component in the direction of a higher unemployment rate.
Perhaps the more discouraging aspect of the jobs data was that non-farm payroll employment in August (derived from the establishment survey) increased by much less than expected. The report showed that the increase in non-farm payrolls was 169,000 while the Street's consensus called for a gain of 177,000, and the gain of 162,000 posted for July a month ago was reduced to 104,000. The non-farm private payroll gains were 152,000, also landing well below economists' forecast of 180,000. This result was also lower than that presented by ADP this past Wednesday, which also landed worse than Street estimates. According to ADP, 176,000 private sector jobs were gained during August, below the Street's consensus estimate calling for a gain of 180,000 jobs.
In all, the August unemployment data appears to be fueling the discussions of Fed tapering as the combination of all these mixed results has not given a clear indication of what to think the Fed will do in terms of reducing its asset purchases sooner or later.
While the jobs data was certainly a cause of volatility today, news that Russian President Vladimir Putin said Russia will continue arms sales and aid to Syria if the U.S. goes forward with a military strike caused stocks to take a dive, as reflected by the Dow losing close to 200 points from peak to trough. At the moment, however, stocks are back in the green and appear to be more stable as the trading week comes to a finish.
Eyes on Oil
By David Urani
Here we go again, with crude oil looking a little bit threatening going past the $110 mark and ready to test new highs for the year. It got a little bit of an extra nudge this morning when we heard that ex-KGB agent, 6th degree black belt, proud owner of Bob Kraft's Super Bowl ring, and President of Russia Vlad Putin is ready to assist Syria in the event that the US chooses to intervene. In fact, that spooked the whole market. As it turns out, the market is digesting those comments and it's quite possible that Russia is referring to a continuation the humanitarian aid they're already giving to Syrians. Nevertheless, the unrest in that region is as high as ever and Russia does in fact now have several warships in and on the way to the Mediterranean.
With respect to oil, the good news is that perhaps some of the strength recently is temporary (or transitory, as Bernanke would put it) given that it's being lifted by political events. Of course, oil is still quite a way below the all-time record of above $140 which it hit just before the recession. However for this day of the year, September 6th, oil is higher than in any other year previously.