God help you if you were hopeful the stock market might be closed for Cinco de Mayo. We are sorry to inform you that the stock market is in fact open on Cinco de Mayo. You will be glad to discover that the bars will still be open after the closing bell though. Today's Coffee covers two employment data points, ISM's service sector measure, a check on mortgage activity, a read on petroleum inventory and the Washington and corporate news drivers of the day.
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Wednesday started the monthly employment report parade. The news was kind of bland, while still offering reason to look forward to Friday's labor market data. However, the market had enough negative news from overseas to keep it from betting on gains. The euro seems to be about to unravel, as Greece caught fire like we said it would.
Challenger Job-Cut Report
Challenger, Gray & Christmas produced its Job-Cut Report this morning. Challenger said companies announced layoffs numbering 38,326 in April, marking a sharp drop-off from March's planned firings of 67,611. April's report showed the lowest total since July of 2006. We believe the count fell off from the prior month due to the postal service firings recorded in March. Layoffs were 71% off of last year's rate, when things were about as bad as they got for labor. Retail offered enthusing strength, while strained municipalities and non-profits led layoffs. Remember, less firings do not necessarily mean more hirings are occurring. Still, the latter must eventually follow the former if economic growth continues.
ADP Private Employment Report
ADP published its Private Employment Report for April this morning. Nonfarm payrolls increased by 32,000, compared against a 19,000 increase in March (revised from -23K). February's data was also revised upward, to an increase of 3,000, thereby providing three consecutive months of job growth. The news is good, but it also makes a statement against the accuracy of the data. At present, it better matches the trends we have already seen in the government's Labor Department report. The better news is that the impact of census hiring should drive a higher number for Friday's Employment Situation data. An ADP representative was interviewed today on Bloomberg Radio and suggested census hiring might number 145K or so. While this might allow the government to produce a strong data point, the market should be smart enough to figure out the temporary nature of this addition, at least by market close.
A closer inspection of the report shows that the President's efforts to spur the small business sector continue to fail. The Administration's policy geared toward inspiring hiring by offering related tax breaks is not the right tool for the job. Small business sentiment measures and organization leaders like my old college dean say small businesses need business first to justify additional employees. So, it is clear then that you cannot inspire hiring where no employee is needed (seems obvious enough though). ADP's data shows the small business sector added only 1,000 jobs in April. Medium-sized operations (50-499 employees) brought in an additional 17,000. Large-sized operations of 500 or more employees added 14,000 jobs. The problem is that the small sector is substantial in America, and for as long as it languishes, the overall labor market will as well.
We received some good news about the service sector, as ADP noted a 50K payroll count increase for the important segment. While the goods producing space shed 18K jobs, manufacturing still gained an enthusing 29K. Construction continued to languish, as the industry lost another 49,000 payrolls. A stunning total of 2,159,000 construction jobs have been lost since the industry peak in January 2007. Financial services lost another 14K jobs this month, marking more than three years of contraction in that troubled sector.
ISM Non-Manufacturing Survey
ISM published the results of its latest Non-Manufacturing Survey today. After March's index gained sharply, adding 2.4 points to 55.4, April marked a stall in activity, sort of. The reading of 55.4 compared against economists' expectations for a measure of 56.4, based on Bloomberg's survey. A reading above 50 marks economic expansion, so holding steady at 55.4 simply signifies the rate of expansion has held.
Most expected last month's strong New Order activity to translate into a higher pace of expansion in April. That was not the case though, or perhaps it was all captured in March's overall reading. The New Orders Component Index gave back 4.1 points this month, to move to 58.2. The Business Activity Index pretty much held, striking at 60.3 in April. However, Employment slipped 0.3 of a point, to 49.5, as businesses are "trying to get by with existing force until new orders increase," according to one respondent.
The 14 industries reporting growth in April based on the NMI composite index — listed in order — were: Arts, Entertainment & Recreation; Real Estate, Rental & Leasing; Information; Agriculture, Forestry, Fishing & Hunting; Management of Companies & Support Services; Other Services; Wholesale Trade; Accommodation & Food Services; Construction; Finance & Insurance; Transportation & Warehousing; Mining; Retail Trade; and Public Administration.
The four industries reporting contraction in April were: Utilities; Educational Services; Health Care & Social Assistance; and Professional, Scientific & Technical Services.
Mortgage Activity Data
The Mortgage Bankers Association published its Weekly Mortgage Applications Survey for the period ended April 30. Recent trend held, as strong Purchase driven activity continued to benefit on tax incentive.
The MBA's Market Composite Index edged higher by 4.0%. The Refinance Index component of overall activity gave back 2.1%, even as the average contracted mortgage rate fell. 30-year and 15-year rates on contracted fixed rate mortgages fell slightly to 5.02% and 4.34%, respectively. These rates might come down further as Europe becomes less of a competitor for capital.
Purchase Activity continued to gain during the final week to enter into contract to obtain the First-Time Homebuyer Tax Credit. The Purchase Index soared 13%, and was up by about 24% over the last month. Investors are most concerned about home purchases now, not mortgage adjustments, and so this data should have been viewed positively again. The problem is that question remains about how well housing will hold up on its own (without special tax incentive). The hope is that enough inventory will have been taken off the table to allow for price footing and sales growth despite still high unemployment.
Petroleum Status Report
The EIA's weekly Petroleum Status Report was released as usual. Today's data covering the period ended April 30, showed a 2.8 million barrel increase in crude oil inventories and a 1.2 million barrel increase in gasoline stores. Both commodity stocks stood above the upper limit of the average range for this time of year.
Reduced funding needs allowed the Treasury room to cut auction sizes in its second-quarter refunding. The refunding will total $78 billion and raise $47.1 billion in new cash. The Treasury will auction $38 billion of 3-year notes next week, down from a run of $40 billion offerings. The 10-year auction size is $24 billion, down $1 billion from the first-quarter refunding. The 30-year offering is unchanged at $16 billion. The Treasury expects to gradually decrease all coupon sizes in the months ahead. It is adding a second reopening of the 10-year TIPS beginning in July, making for six auctions of the issue per year.
The Assistant Secretary for Economic Policy and the Chief Economist of the Treasury, Alan Krueger testified before the Joint Economic Committee today on the subject of jobs. Treasury Secretary Tim Geithner testified before the Senate Finance Committee on the proposed bank tax in Washington. Boston Federal Reserve Bank President Eric Rosengren gives an address to the Money Marketeers of New York University at 7:00 PM.
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