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Market Recap: Manufacturing Outweighs Soft Labor Data

Greek Coffee

This latest copy of "Greek Coffee" focuses on the day's economic reports. There were many, mostly bad, but with one bright spot that saved the trading day. We had a flood of labor market data to digest today, with Weekly Claims, the Monster Employment Index and Challenger's Job-Cuts Report. Since we believe "more of the same" is no longer good enough for a stock market that started pricing in a swifter recovery, the day's tepid-to-frigid jobs data would have surely soured the mood ahead of the Employment Situation Report due tomorrow. It would have, if not for a fantastic manufacturing note that was supported by strong motor vehicle sales.

Weekly Jobless Claims

The weekly report tallying new unemployment benefits filers today offered up the same familiar foul flow. New claims numbered 439K for the week ended March 27, down 6,000 from the prior week's revised figure. The four-week moving average showed a similarly slight improvement, with new filers averaging about 447,250, down 6,750 from the prior week average. When the four-week moving average and the weekly count produce a near exact and inconsequential change, you know the economic data point has stuck around this level for some time. The problem is that it's not offering enthusing information.

Also, we picked up from an expert commentator on Bloomberg Radio that unemployment filers surviving on extended benefits outnumber those on the regular program. That says something about the average length of unemployment; actually it's the same thing the federal government's monthly Employment Situation Report tells us. Folks have been out of work for quite some time now, and when that happens, skills are lost and productivity is impacted when they are rehired. That will only add to the slow pace of recovery...

Data to chew on:

The highest insured unemployment rates in the week ending March 13 were in Alaska (7.2 percent), Puerto Rico (6.4), Oregon (6.1), Pennsylvania (6.0), Wisconsin (5.9), Idaho (5.8), Montana (5.8), Michigan (5.5), Nevada (5.5), and Rhode Island (5.3).

The largest increases in initial claims for the week ending March 20 were in Illinois (+1,396), Oklahoma (+1,152), Missouri (+792), South Carolina (+395), and New Mexico (+303), while the largest decreases were in California (-5,180), Pennsylvania (-3,677), North Carolina (-2,733), New Jersey (-2,521), and Michigan (-1,644).

Job Cuts Report

Challenger, Gray & Christmas reports monthly on announced corporate layoffs. It's information for March soured sentiment on the Street today, given that declared firings increased over the number seen in February. Announced job cuts numbered 67,611 in March, versus the 42,090 in February. That news killed the positive impact that lower overall Q1 layoffs might have had; the quarter was down sharply from the worst quarter of the recession in Q1 2009.

Online Job Demand

Monster WorldWide (NYSE: MWW) reports monthly on the state of the online job search market. Here at least we found some data to dull the impact of an otherwise stinging labor market measurement. Monster's Employment Index (NYSE:MEI) improved in March by a point, to 125, and stood well above last March's mark of 118. This month's reading is the high-mark for the last 12 months, but that's not saying much. The low point was 114, seen in January of this year and last July as well. All 28 major metro markets saw online job demand rise, but the industries reporting improvement were suspect and working off a bare bones employment base. Get this... demand improved in real estate, rental & leasing, and in construction. I guess employment in these sectors got as bad as it could get; I would not read into this data a start to significant near-term activity in the industries. All the data coming out of construction has continued poor, including the next data point seen here below.

Construction Spending

Construction Spending Sank by 1.3% in February, worse than the 1.1% drop expected by economists. Spending is down 12.8% compared to February of 2009. Residential construction spending was down 2.1% in February, while non-residential fell off 1.0%. Within the non-residential segment, office construction was off 6.2%, while commercial development was down 2.6%. Pretty much across the board spending was down, except mind you, in manufacturing, where construction spending rose a sharp 3.4%.

Manufacturing - One Bright Spot

That one bright spot, manufacturing, was also apparent in the ISM Manufacturing Index, which was reported today for March. ISM's measure of manufacturing improved to 59.6%, up from 56.5 in February. The good news was pretty wide spread as well. New Orders rose 2 points to 61.5, and Production improved 2.7 points to 61.1. Inventories shot up 8 points to 55.3, while Customers' Inventories increased 2 points. The supply chain is strained, another positive factor, as deliveries saw some drag.

According to ISM, "The past relationship between the PMI and the overall economy indicates that the average PMI for January through March (58.2 percent) corresponds to a 5.4 percent increase in real gross domestic product (GDP)." As much of the rest of the economy is still dragging, we would temper that estimate down quite a bit; other indicators point toward modest growth.

Within the ISM reading, its Employment Index slipped a point to 55.1. However, 17 of 18 manufacturing industries reported growth, and prices of raw material commodities rose across the board, except natural gas. So, expect the manufacturing sector to continue hiring, and the 55.1 reading still represents hiring activity; a reading above 50 is expansionary.

Economists were only looking for a measure of 56.3 today, and the market rewarded itself, as the Dow improved fractionally. Meanwhile, a report out of China only served to fuel the fire. According to an HSBC (NYSE: HBC) survey, China's PMI improved to 57 in March, up from 55.8. Putting this into perspective, it was the third highest monthly mark in the measure's six-year history.

Now, allow me to point out that commodity prices rose despite a strengthening dollar. Allow me to also remind that the euro may be in a better position, after the EU announced it would keep its club together; this despite the downgrade of Portugal, though maybe also because of it. In any event, the dollar could be due to soften again, which means inflation for Americans. Inflation means interest rate hikes will suddenly be on the bargaining table at the Fed. Stocks turn sour once the Fed hikes rates, so stay tuned. There are many wheels turning... What we can hope for is that the latest driver of growth, especially in China's case (pray for it), had more to do with restocking than robust and flowing demand. In that case, we might catch a breather to get real economic growth some momentum before rates need to be raised. I believe the "restocking" card is real, though only partially to blame. This, and historical trend, is why I look for a quarter or two of economic backtracking ahead, before slow growth gains traction.

Wild Card: War with Iran; the depth and chaos of such a war; and unseen events.

Motor Vehicle Sales

Auto sales were expected to improve sharply in March, and they did. Sales, running at an annual pace of 8.8 million, towered over February's 7.6 million depressed rate. However, the March pace fell a little short of economists' consenus for 9 million. Incentives spurred by the Toyota (NYSE: TM) scandal seemed to help all takers, not to mention better weather. GM's domestic sales rose 21%; Ford's (NYSE: F) rose 40%; and Toyota's sales improved 41%. Remember, Toyota was coming off a tough month. Chrysler's sales declined, while Honda (NYSE: HMC) posted a 22% gain, and Hyundai +15%.

Corporate Earnings Drivers

Research in Motion (Nasdaq: RIMM) reported results on Wednesday afternoon. RIMM shares sank 7.4% due to a poor revenue outlook. The day's short list of confirmed reports includes news from: Bank of Moscow (MMBM.RTS), CarMax (NYSE: KMX), China Ritar Power (Nasdaq: CRTP), GigOptix (Nasdaq: GGOX), Medical Nutrition USA (Nasdaq: MDNU), Movado (NYSE: MOV), Multiband Corp. (Nasdaq: MBND), NGP Cap Resources (Nasdaq: NGPC), Scholastic (Nasdaq: SCHL) and Worthington Industries (NYSE: WOR). Article should also interest investors in NYSE: HON, NYSE: CAT, NYSE: GE, NYSE: UTX, NYSE: CBE, NYSE: PPG, NYSE: MMM, NYSE: DOW, NYSE: DD.

Disclosure: No Positions