The economic calendar has been heavy during the past few sessions with traders focused on the employment situation. The first Friday of the month is the set date for the release of nonfarm payrolls data. Ahead of this report, traders get several other releases that help provide insight to the employment situation. These include data found in manufacturing reports like the Chicago PMI and ISM Mfg. Survey, as well as the Challenger Job Cut report and the ADP Employment report.

The Chicago PMI for August came in a bit better than expected at a reading of 56.7. However, this is down from 62.3 in July and is the lowest reading for the index since November 2009. Even so, the employment component was solid at 56.6, which suggests a moderate gain in manufacturing payrolls.

The ISM Mfg. Survey was also better than expected in August, rising to 56.3 from 55.5 in July. Economists were looking for the index to fall to 53.0. New orders fell to 53.1, but still point to moderate growth. The employment component was solid at 60.4 in August, up from 58.6 in July and the highest level for employment since before the recession. New orders were strong as well, rising more than a point to a level of 65.9 for their third consecutive 60+ reading.

The manufacturing sector continues to be a leader in the economic recovery, while the housing sector remains a drag on the economy. Construction spending in July fell 1.0 percent after a 0.8 percent decline in June. Both figures were worse than expected with the end of housing credits in April taking a toll on construction spending. Private residential outlays fell 2.6 percent in July after a 2.0 percent drop in June. Year on year, construction outlays are down 10.7 percent, 3-tenths worse than in June.

Home prices as measured by the Case-Shiller report showed gains in June, but this is a result of the tax credits that were being offered through April. House prices in the report’s 10-city index rose 1.0 percent month to month and were up 5.0 percent year on year. However, the general feeling is that home prices will fall in July and August given the slowdown in housing starts following the end tax credits.

Consumer confidence is something the Fed keeps an eye on as it can provide insight to consumer spending. Confidence in August as measured by the Conference Board rose to 53.5 from 51.0 in July. This is still down sharply from a reading of nearly 63 in May. In fact, August’s reading puts the year on year rate at a drop of 1.0 percent.

Same-store sales for the week ending August 28 showed mild improvement. The ICSC-Goldman report showed a week on week gain of 0.1 percent with the year on year rate at 2.8 percent, up 5-tenths. However, the four-week moving average year on year rate is at growth of 3.0 percent, its softest reading since June. Redbook also showed improvement to growth of 3.0 percent from 2.6 percent in the prior week.

The FOMC minutes for the August 10 meeting were released Tuesday, showing that the committee is divided over the direction of monetary policy. The FOMC did lower its economic outlook, but didn’t announce any significant plans to spur economic growth by using monetary policy. Traders have turned their attention from when the Fed will take back stimulus to if the Fed needs to increase stimulus to keep the economy out of a double dip recession.

The main focus this week is the jobs market and traders got some data on this sector Wednesday. The Challenger Job Cut report showed that just 34,768 job cuts were announced in August, down from 41,676 in July. This is also less than half the cuts announced in the year ago period. This is a positive, but the fact less jobs are being cut doesn’t necessarily mean corporate America is ready to hire.

This was shown once again in the ADP Employment data, which showed a decline of 10,000 private payrolls during the month. July’s initial gain of 42,000 jobs was lowered by 5,000 as well. Economists are looking for a decline of 80,000 nonfarm payrolls in the month, but unlike the ADP, the Labor Department’s report includes government data. In July, private payrolls did see gains with the decline in the DoL report due to a loss of 202,000 government jobs.

Stocks rallied sharply Wednesday as traders celebrated better than expected manufacturing data in the U.S. and China. Traders have been pricing in weakness in the economy and today’s data relieved some of these pressures, sending the major market indices up.

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