Jobs data fails to confirm green shoots theory, leading to concerns about the economy. The June employment report was released this morning, a day earlier than normal thanks to the July 4 holiday on Friday. On Wednesday, the ADP Employment report was disappointing, but this report hasn't been the best indicator for nonfarm payrolls in the past. Besides the employment data, traders got reports on jobless claims and factory orders. Now that the employment data has been released, the focus of traders will turn more toward earnings, which kick off with Alcoa's report next Wednesday.
Nonfarm payrolls in June fell by 467,000 when a milder decline of 350,000 was anticipated following May's 345,000 drop. However, the unemployment rate from the household survey rose just a tenth to 9.5 percent, which was a tenth below expectations. Nonetheless, the unemployment rate is at a 25-year high. On a year-ago basis, payrolls are down 4.1 percent in June, up 2-tenths from May's figure. This news put a damper on green shoots talk of late and even has some analysts calling for the government to do more to keep the economy from reentering a deeper recession.
On Wednesday, the ADP Employment report showed a decline of 473,000 private payrolls and for a change, this report was a rather good predictor. The Challenger report, which measures job cut announcements, showed that 74,393 job cuts were announced during June. This was down from 111,182 in May and June's result was the lowest since the beginning of the recession. Jobless claims for the week ending June 27 fell by 16,000 to a level of 614,000, putting the four-week moving average at 615,250. Continuing claims also declined by 53,000 to a level of 6.702 million. The fact is that job losses are starting to ease, but there are very few signs, if any, that hiring is going to take place anytime soon.
Factory orders for May rose 1.2 percent following a 0.7 percent rise in April. This gain was 2-tenths below expectations, though new orders for durable goods rose 1.8 percent. Outside new orders data though, things weren't that positive. Inventories fell by 0.6 percent, which can be viewed in different ways. The bulls will say this is a good sign because it means an increase in output when businesses look to restock shelves. However, the bears will say that businesses are lowering inventory levels in case demand does not improve. Shipments in May also fell by 0.6 percent with unfilled orders off 0.2 percent.
The ISM Mfg. Index for June showed mild improvement as well with the index up 2 points to 44.8, roughly matching estimates. However, any reading below 50 is considered a state of contraction. New orders had been showing strength, but this component actually fell in June by a few points to push new orders below 50. In related news, construction spending in May fell 0.9 percent , erasing April's gain of 0.8 percent. The consensus was for construction spending to fall by 0.5 percent. In the past year, spending is down 11.6 percent, an increase over April's year on year decline of 10.7 percent. Home builders continue to wait for unsold inventory levels to decline, but it is a slow process and this is taking a toll on construction spending. At least pending home sales did see a mild rise in May with the index rising to 90.7 from 90.3 in April.
Next week's economic calendar is light with the focus of traders likely to turn to earnings. However, data on the services sector of the economy will be released Monday. The only other major report is the international trade release on Friday. However, data on jobless claims will carry some weight.
Jody Osborne
Senior Staff Writer & Options Strategist
Optionetics.com ~ Your Options Education Site
