Without question, the headline news this week is the U.S. presidential election. Change is coming, whether it be in the form of Barack Obama or John McCain, it's a coming! Markets should feel a refreshing breeze around the globe, as the universal opinion of the world's populous sees the departure of one G.W. Bush as a net positive. Thus, sentiment should be positive for stocks, but only until Friday's big bad employment report, which is expected to show a net loss of 200K nonfarm jobs in October.
October light motor vehicle sales were reported Monday, the lowest in 17 years at 7.7 million. The figure fell well short of consensus expectations for 9.2 million. General Motors (NYSE: GM) reported sales fell 45%, Chrysler noted a drop of 35%, Ford (NYSE: F) declined 30% and Toyota (NYSE: TM) sales fell 23%.
The news was bad all around, with the October ISM Manufacturing Index dropping to 38.9, from 43.5 in September. Construction Spending also fell 0.8% in September, but the market held steady ahead of the US presidential election.
It's election day, finally! The entire world will be attentive to the United States from morning through midnight, as the American electorate makes a decision that concerns the entire world. Outside the United States, poll and anecdotal evidence point toward an overwhelming hope for Barack Obama to succeed President Bush. However, American states will decide, and interests are much more evenly divided within the States, versus popular count.
Overseas news is scheduled to lead the wire, as the Reserve Bank of Australia is expected to cut its key rate by 50 basis points (cut by 75 BPS). Early States-Side economic news will be highlighted by the ICSC-Goldman Weekly Same-Store Sales Report. We track the data closely here. Last week countered the recent deceleration trend, as year-over-year growth picked up to 1.3%. September Factory Orders are due for release at 10:00 AM EST. Bloomberg's consensus of analysts sees a decrease of 0.7%, versus an August drop of 4.0%.
By Wednesday morning, we'll know who our next president will be, and that news should overshadow all other news for the day, if not for the week. Still, that won't stop the pre-market releases of two of the key monthly employment reports due. The Challenger Job-Cut Report, due at 7:30 ET, should challenge September's announced layoffs of 95,094 with more for October. Then at 8:15, the ADP Private Employment Report looks likely to post even softer data than September's decline of 8K jobs.
Wednesday always brings its regularly scheduled Mortgage Activity Report in the early AM, produced by the Mortgage Bankers Association, and then the EIA Petroleum Status data at 10:30 ET. Oil is currently finding support from incessant OPEC threats to reduce production until prices stabilize. Dallas Fed President Richard Fisher is scheduled to address a group at 10:45 AM EST. Overseas, the IMF is expected to consider a $2.1 billion loan to Iceland.
A few more pieces of the labor market puzzle come into place on Thursday, as the Monster Employment Index is reported in the pre-market (Nasdaq: MNST). September's report marked the index at a level of 160, which matched where it was in January. It's safe to say this metric has been a lagging indicator in terms of reflecting labor deterioration seen everywhere else. However, we should note that the metric has seen a high of 174 in April and a low of 157 in July. The Weekly Jobless Claims Report is seen reaching 480K in the most recent period, compared to 479K the week before. At some point, and likely soon, claims should surpass 500K and send a shock wave through the market. Of course, the Employment Situation Report threatens to do so as well each month.
Nonfarm Labor Costs and Productivity are also due for the third quarter. The final reading for Q2 showed productivity improvement of 4.3% and cost decrease of 0.5%. We attribute Q2's productivity improvement to decreased hours worked and lighter workforce. Economists expect Q3 productivity to increase 0.8%, while Unit Labor Costs increase 2.8%.
The Bank of England and European Central Banks have their regularly scheduled monetary policy meetings Thursday, and both banks are expected to match the U.S. Federal Reserve's 50 basis point action.
Chain Store Sales are due for the month of October, and we're not expecting much from the individual retail reports. Last month, we noted high-end shops joined department stores in the dumps, with poor sales data from Saks (NYSE: SKS), Neiman Marcus, Tiffany (NYSE: TIF) and others. Stores that had been performing well like The Gap (NYSE: GPS) and teens retailers met headwinds as well, and firms like Target (NYSE: TGT) are reorganizing business models to better handle the economic downturn. Deterioration has only expanded since, and a loss of confidence has overcome consumers, so we think tough times will be reflected in this report.
A busy four-report day on Friday is headlined by the big Employment Situation Report. Nonfarm Payrolls are seen dropping dramatically by 200,000 in October, after shedding a net of 159K jobs in September. The unemployment rate is expected to deteriorate to 6.3%, from 6.1% in September. The changes in average hourly earnings is seen up 0.2%, like in September, and the average workweek is expected to stick at 33.6 hours.
At 10:00 AM, look for September's Pending Home Sales Index. It increased 7.4% in August, to a level of 93.4. Wholesale Trade data is also due at 10:00. Wholesale inventories increased 0.8% in August, and are seen rising 0.3% in September. Consumer Credit is due to be reported in the afternoon. After decreasing for the first time in a long while in August, dropping by $7.9 billion, credit is also expected to have fallen by $0.5 billion in September.