By Carlos Guillen
Stocks markets here at home are having a great treading session, reflected by the Dow Jones Industrial Average reaching yet a new all time intraday-high, as most economic data points presented today combined with positive comments from the Federal Reserve yesterday have served to motivate investors on the sidelines to get in the game.
Clearly very encouraging today was that data showed the number of people filing for unemployment benefits ticked lower, adding to the positive employment sentiment that was sparked yesterday with the better than expected ADP nonfarm result. According to the Department of Labor, initial claims during the week ended July 27 totaled 326,000, decreasing from the 345,000 revised figure reported for the prior week and landing below the Street's estimate of 345,000. The result was further below the 350,000 level, which economists say is consistent with moderate labor market growth of about 150,000 net new jobs a month. The initial claims' four-week moving average was 341,250, decreasing from the prior week's average of 345,750. Considering that firings are slowing and that nonfarm gains have also been consistent, averaging around 195,000 per month in the second quarter, it is apparent that the jobs market is handling the most recent government job cuts fairly well, and it is probable that the foundations are being set for improvements in employment.
Perhaps the most important fundamental bit of economic data out today was the Institute for Supply Management (ISM) Purchasing Managers' index (PMI), considered by many to be a very important health indicator of the manufacturing industry here at home. PMI in July clocked in at 55.4 percent, increasing from the 50.9 percent reported for June and landing above the 51.5 percent consensus estimate; the result was a nice acceleration to the gain seen in the prior month. Of the 18 manufacturing industries, 13 reported growth in July. Given that a reading below 50 percent indicates the manufacturing economy is generally contracting, this PMI result puts the U.S. manufacturing sector into its second month of growth mode after landing in contraction territory back in May. Also encouraging was that, given that a PMI over 42.2 percent over a period of time generally indicates overall economic expansion, the result also indicates the 50th consecutive month of overall economy growth.
It should also be noted that new orders in the ISM report, considered to be an important leading indicator, also showed a very encouraging jump. In fact, new Orders increased 58.3 percent in July, up from the 51.9 percent posted for the prior month. So while the U.S. is still in slow economic expansion, the acceleration in new orders may be indicative of an upcoming acceleration in economic expansion in the short term.
At the moment all the focus is on labor markets as investors look for any indication as to when the Fed may begin to scale back its $85-billion-a-month bond-buying program, which has supported equity prices for some time now. As it stands Economists expect a rise of 175,000 in nonfarm payrolls and a slight decrease in the jobless rate from of 7.6 percent to 7.5 percent, but if yesterday's ADP report said anything about Friday's job's numbers, things are looking encouraging.