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MANUFACTURING DISAPPOINTS By WSS Research Team

Carlos Guillen

Very encouragingly today, equity markets are trading in green territory despite poor manufacturing data. Clearly, signs of a deal for a resolution for the Fiscal Cliff dilemma are serving to lift stocks during today's session.

On a negative note, manufacturing in the New York region contracted this month at a faster pace than anticipated. According to the Federal Reserve Bank of New York, its general business conditions index December result landed at -8.1, lower than the Street's consensus estimate of 2.0, decreasing from the -5.2 reached in November. Given that readings greater than zero signal expansion, this month's result stands as the fifth consecutive month of contraction in the region that covers New York, northern New Jersey, and southern Connecticut. Orders for the region's manufacturers fell to -3.7, showing the industry that spurred the recovery from the recession is still facing a hurdle from a weaker global economy. Manufactures also revealed that super-storm Sandy negatively affected revenues in October and November, which were 7% and 5% lower, respectively, than they otherwise would have been. It was also discouraging to see that both employment indexes pointed to weaker labor market conditions, with the indexes for the number of employees landing below zero for three consecutive months and with the average workweek registering values below zero for three consecutive months.

Fiscal Cliff

As we saw over the weekend, there is now a new proposal that allows raising taxes on earnings of over one million. Of course, this will be dependent on cuts to entitlement programs. At the moment, the ball is in the White House court, but there has not been a response yet. However, despite the fact that there is still no conclusion to this situation yet, the fact that there is a move to reach an agreement by John Boehner has investors breathing a sigh of relief at the moment.

This last week before Christmas promises to be quite eventful with a slew of economic data including leading indicators such as building permits, initial claims, durable orders, and Michigan Sentiment. This will certainly be a week with lots of volatility as results beat and miss expectations.

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