The Nitty Gritty Details:
The market opened lower this morning after a surprisingly weak ADP jobs report. The report has not been a very good predictor of the government’s monthly payroll series, but it has tracked well enough to cause market watchers today to further question the path of the economic recovery. ADP reported only 38,000 new private jobs were created in May, well below expectations north of 170,000. European markets were near unchanged before selling off after the weak U.S. job report. Asian markets were mixed, with Hong Kong shares slightly lower and the Nikkei up a bit. Growth concerns are outweighing the weaker dollar and pressuring key commodities.
Looking back at Tuesday, stocks finished with solid gains, but the S&P ended the month with a loss of 1.1%. Tuesday’s gains were fueled by the news that Germany was softening its stance toward another round of aid for Greece. Early strength faded some mid-day after several disappointing economic reports (Chicago PMI, consumer confidence, S&P/Case-Shiller home prices), but the broad averages closed at session highs thanks to a late rally. Technology topped the sector rankings, while Health Care was the only other sector to outpace the S&P’s roughly 1% advance. Dollar weakness helped drive energy and metals prices higher, although grain prices were under pressure after Russia lifted its wheat export ban.
Around our financial planning firm this morning, we were discussing three items that we thought would be of particular interest to our readers:
The Markets Broken Down:
- Weak economic data is not being confirmed by corporate earnings. Earnings estimates continue to inch higher, an indication that corporate America is doing just fine amid the host of macro challenges, namely disruption in Japan and terrible U.S. weather that have contributed to a string of weak economic reports. American companies continue to do well overseas despite decelerating growth in China. Further, companies are also doing more with less – productivity has increased dramatically since the current expansion began in July 2009.
- Job layoff announcements are the lowest in 13 years. Layoff announcements, which tend to lead initial claims for unemployment insurance by a few months at turning points, rose by less than 1,000 between April and May but were down 4% year-over-year. Layoffs in the government sector continue to be the largest single source of job cuts. Total layoff announcements over the last 12 months (476,000) were the lowest for any 12-month period since early 1998, when the unemployment rate was 4.5%. In short, layoffs aren’t the problem, new hiring is.
- The ADP employment report for May was way below expectations, but a spike in claims in May probably had a major impact on the report. The ADP employment survey revealed that private sector employers added just 38,000 jobs in May 2011. The April gain was revised down from 179,000 to 177,000. The gain in May was the sixteenth consecutive monthly gain in the series, the longest stretch of gains since mid-2007 (pre-recession). Not only was the 38,000 gain below expectations (175,000), it was also below the low end of the range of expectations (125,000 to 200,000). The ADP data is calculated using actual payroll data compiled by ADP along with the weekly initial jobless claims data. Claims were elevated in May due to a variety of factors, so the ADP report most likely understates the strength in the labor market in May. The government’s non-farm payroll jobs report is due out on Friday. The market is looking for a gain of 209,000 private sector jobs in May.
As always, email me here with your questions or comments. I love to hear from you and thoroughly enjoy the “intellectual debate” with our clients and friends that these opinions generate.
Greg Powell, CIMA
Note: The opinions voiced in this material are for general information and are not intended to be specific advice. Any indices such as the S & P 500 can’t be invested into directly. Past performance is no assurance of a future result.
Because of regulation, comments have been turned off.