Economic news continued to pour in Thursday ahead of the employment report on Friday. In the past two sessions, data has covered a wide spectrum, mostly positive, except for the jobs market. On Wednesday, several jobs related reports were released, along with data on productivity and costs, factory orders and the FOMC minutes. On Thursday, traders got data on chain store sales, along with the ISM Non-Mfg. Index. Despite better than expected results in many sectors of the economy, traders might not be ready to push stocks higher until the employment situation improves.

The FOMC minutes from the August meeting provided some optimism with Fed governors and District Bank presidents showing increased confidence. Most believe that the recession has bottomed and that growth will resume in the second half of the year. Nonetheless, Fed leaders continue to state that there remain risks, especially in the labor markets. This has left the consumer lagging, which has shown in the chain store sales data for August.

Chain store sales in August did show some improvement, although most same-store sales figures remained negative. Target (TGT) saw its same-store sales fall 2.9 percent when estimates were for a decline of 5.1 percent. Wal-Mart (WMT) doesn't provide monthly results anymore, so Target is a good proxy. Costco (COST) also saw a decline, but results were better than expected. Overall, the ICSC reported that same-store sales in August fell 2.1 percent compared with the year ago period.

On Tuesday, the ISM Index moved into expansion territory for the first time since Jan. 08. Manufacturing data has been a positive for the economy, being the first sector to emerge from the recession. Factory orders in July showed gains, up 1.3 percent, though a percent below expectations. The ISM Non-Mfg. Survey showed some improvement in August, up two points to 48.4. However, the services sector remains in contraction territory below 50, although at its highest reading since Sept. 08.

Productivity in the second quarter was revised higher by 2-tenths to 6.6 percent. Economists were expecting productivity to remain at 6.4 percent growth. This gain in productivity pushed unit labor costs lower to a decline of 5.9 percent from -5.8 percent. Hours worked fell 7.6 percent while output decline 1.5 percent. Year on year, productivity is up 1.9 percent in the second quarter, up from 1.0 percent in the first quarter. This data confirms second quarter earnings results that showed improvements in earnings thanks to cost cutting.

Hovnanian (HOV) reported earnings that were disappointing with the home builder missing earnings estimates by 64-cents a share. The housing sector has shown a deceleration in declines, but has yet to significant improvements. The MBA Mortgage Applications report for the week ending Aug. 28 showed a 1.0 percent decline despite the fact the 30-year mortgage fixed rate fell 9-basis points to 5.15 percent.

The focus this week is firmly on the jobs market with a number of reports on the sector leading up to the employment report Friday. The Challenger Job-Cut report for August showed a substantial decline in announced layoffs. Job cut announcements came in at 76,456, down from 97,373 in July. The government made up nearly half the cuts with the post office seeing a number of job cuts during the month. However, jobless claims for the week ending Aug. 29 fell by 4,000 to a level of 570,000, right in line with the four-week moving average. However, continuing claims rose by 92,000 to 6.234 million.

The ADP Employment report was bit disappointing for August, showing a decline of 298,000 private payrolls, about 50K worse than expected. Though this report hasn't been necessarily in line with the BLS data, it does provide some insight into the jobs market. The ADP report has shown month to month improvements, just like the BLS release, but a return to jobs growth seems further out than traders would like to see. The BLS report on Friday is expected to show a decline of 200,000 nonfarm payrolls with the unemployment rate rising 2-tenths to 9.6 percent.

Jody Osborne
Senior Writer & Options Strategist
Optionetics.com ~ Your Options Education Site