Manufacturing activity largely unchanged in August as the sector expanded for 25th straight month.
Unemployment claims came in almost exactly as expected with first time claims being 409,000.
Here are the top financial stories of the day:
1) Payroll worries end Wall Street's four-day rally-From Reuters
Wall Street's four-day rally ground to a halt on Thursday, with major indexes falling 1 percent on caution ahead of a key labor market report expected to underscore fears the economy is headed for another recession.
Financials were the biggest losers, selling off sharply in the afternoon, led by Goldman Sachs Group Inc (NYSE:GS - News). Goldman's shares fell 3.5 percent to $112.16 after agreements with the Federal Reserve and New York state's banking regulator over wrongful foreclosures raised concerns that Goldman is still not yet off the hook.
JPMorgan Chase & Co (NYSE:JPM - News) and Bank of America Corp (NYSE:BAC - News) were the two biggest losers on the Dow, both falling more than 3 percent.
A day ahead of the government's release of monthly payrolls data, a decline in the employment component of the Institute for Supply Management's factory activity index heightened worries that August jobs growth will be weaker than feared. ISM's factory activity index came in only just above the level that indicates growth.
Recent employment indicators suggest "zero growth in private payrolls," said Jack Ablin, chief investment officer at Harris Private Bank in Chicago. "If that comes to pass we are going to have some big disappointments tomorrow."
In another discouraging sign, the White House, already struggling to turn around the high U.S. unemployment rate, cut its economic growth outlook for the next two years.
After dropping more than 17 percent from early July to early August, the S&P 500 had risen by 9 percent heading into Thursday's session, leaving investors reluctant to place big bets a day ahead of the August labor report, which is expected to show an increase of 75,000 jobs.
"The news over the past few days hasn't been conducive to the rally continuing, said Randy Bateman, chief investment officer of Huntington Asset Management in Columbus, Ohio.
Bateman, who helps oversee $14.5 billion, said he was not optimistic about the payroll report being strong.
The Dow Jones industrial average (DJI:^DJI - News) was down 119.96 points, or 1.03 percent, at 11,493.57. The Standard & Poor's 500 Index (^SPX - News) was down 14.47 points, or 1.19 percent, at 1,204.42. The Nasdaq Composite Index (Nasdaq:^IXIC - News) was down 33.42 points, or 1.30 percent, at 2,546.04.
The benchmark S&P gained more than 5 percent during the four-day rally that ended on Wednesday on increasing hopes for a new stimulus plan from the Federal Reserve at its meeting in late September.
Ciena Corp (NasdaqGS:CIEN - News), a communications equipment maker, jumped 20 percent to $14.71 after posting a profit for the first time in three years. Cisco Systems Inc (NasdaqGS:CSCO - News), the network equipment maker, gained 1 percent to $15.82 and led the Dow.
The S&P retail index (Chicago Options:^RLX - News) fell 1.2 percent as retailers reported August same-store sales that were slightly below expectations as Hurricane Irene drove business away from some stores.
Target Corp (NYSE:TGT - News) fell 1.2 percent to $51.06 while Costco Wholesale Corp (NasdaqGS:COST - News) added 1.2 percent to $79.48.
U.S. construction spending fell unexpectedly in July as public outlays dropped to their lowest level since December 2006 and private spending also sagged, separate data showed.
Weekly jobless claims declined by 12,000 in the latest week, while nonfarm productivity was weaker than previously thought in the second quarter.
Eleven stocks fell for every four that rose on the New York Stock Exchange while on the Nasdaq one stock rose for every four that fell.
Volume was light, with about 7.49 billion shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq, below last year's daily average of 8.47 billion.
2) Factory activity cools, but still expands in August-From Reuters
U.S. manufacturing unexpectedly grew in August and fewer Americans filed new claims for jobless aid last week, defying a slump in confidence that threatened to push the economy back into recession.
The Institute for Supply Management (ISM) said on Thursday its index of national factory activity ticked down to 50.6 from 50.9 in July. The modest slowdown confounded economists' expectations for a fall to 48.5.
Any reading below 50 indicates a contraction in the nation's factory sector.
A separate report from the Labor Department showed initial claims for state unemployment benefits dropped 12,000 to 409,000, showing little sign of a pick-up in layoffs in the wake of declining business and consumer confidence.
"We've gotten a few better reads from data, and my general sense is that things aren't as bad as the headlines read. Companies aren't seeing dramatic change," said Tom Porcelli, U.S. economist at RBC Capital Markets in New York.
U.S. stocks erased losses on the manufacturing data, while Treasury debt prices trimmed gains. The dollar rose against a broad basket of currencies.
However, key details of the ISM survey were soft and initial claims remained perched above the 400,000 level usually associated with a stable labor market.
That indicated the pace of economic growth would remain slow, but further reduced the odds of a second recession.
"The net result is a slowdown, disappointing growth for the third quarter but not a recession," said John Silvia, chief economist at Wells Fargo in Charlotte, North Carolina.
Data ranging from consumer spending to industrial production have showed some strength in the economy after output barely grew in the first half of the year.
While the claims data has no bearing on August's nonfarm payrolls count to be released on Friday, it showed no evidence that businesses responded to the recent financial market turmoil by aggressively laying off workers.
Other reports suggested consumers also did not pull back in August. Many top U.S. retailers on Thursday reported better-than-expected sales last month, despite sagging consumer confidence and Hurricane Irene.
Nonfarm employment is expected to have increased 75,000 in August, according to a Reuters survey, dampened by a strike at Verizon Communications. Payrolls rose 117,000 in July.
About 45,000 Verizon workers went on strike during the survey period for August payrolls. Because they did not receive a paycheck that week, they would be counted as jobless in the government's payrolls count.
A Labor Department official said there were no special factors influencing last week's claims report. The Verizon strike helped to push up claims in the last two weeks.
The four-week moving average of claims, considered a better measure of labor market trends, rose 1,750 to 410,250 last week. The number of people still receiving benefits under regular state programs after an initial week of aid dropped 18,000 to 3.74 million in the week ended August 20.
A second report from the Labor Department underscored the economy's lingering weakness, with nonfarm productivity falling at a 0.7 percent annual rate in the second quarter -- the biggest decline since the fourth quarter of 2008.
That was a downward revision to the previous estimate of a 0.3 percent fall and the second straight quarterly decline.
A slowdown in productivity usually suggests that businesses have to add new workers to meet production, but against the backdrop of an economy growing at a near stall-speed, it implies businesses might have to cut costs to protect profits.
The report showed unit labor cost growth much stronger than previously estimated.
Unit labor costs grew at a more sturdy 3.3 percent rate in the second quarter rather than 2.2 percent. Some economists said this suggested that firms were starting to face some cost pressures. The rise in unit labor costs may be puzzling given a 9.1 percent unemployment rate.
"In our view, the rise reflects a labor market that has less spare capacity than may be commonly perceived, in which case, rising labor costs are likely to continue," said Troy Davig, an economist at Barclays Capital in New York.
But the revised pace is still slower than the 6.2 percent rate in the first quarter, indicating wage pressures remain too well contained to stoke a broader rise in inflation.
3) Jobless Claims Fall, but Still Elevated-From The Wall Street Journal
The number of people claiming new jobless benefits dropped last week, but the still-elevated level reflects a continued weakness in the U.S. labor market.
Separately, U.S. labor costs rose last spring even more than first thought as worker productivity fell, threatening to hurt corporate profits and job growth amid the economy's fight to recover.
Initial jobless claims fell by 12,000 to a seasonally adjusted 409,000 in the week ended Aug. 27, the Labor Department said Thursday. Claims filed in the previous week were revised to 421,000 from an originally reported 417,000.
Economists had forecast claims would drop by less than they did. A Dow Jones Newswires survey put the expected decline at 7,000. However, the level remains too high: economists generally think the economy is adding more jobs than it is shedding when claims drop below 400,000.
The four-week moving average of new claims, a more reliable indicator of the labor market's recent performance because it smooths out volatile weekly data, rose by 1,750 to 410,250.
A Labor Department official said there was nothing unusual in last week's data. Some economists were expecting hurricane Irene to start impacting claims. The previous two weeks of increases were largely blamed by the Labor Department on a 15-day strike at Verizon Communications Inc.
The persistent weakness in the jobs market prompted the Federal Reserve to make a conditional pledge Aug. 9 to keep interest rates close to zero for another two years to try and boost the economy. The Fed expects the unemployment rate, now at 9.1%, to remain high until the end of 2012, when President Barack Obama will try to get reelected for a second term. Obama will lay out his jobs agenda in a speech to Congress next week.
Thursday's report showed the number of continuing unemployment benefit claims -- those drawn by workers for more than a week -- fell by 18,000 to 3,735,000 in the week ended Aug. 20. Continuing claims are reported with a one-week lag.
The unemployment rate for workers with unemployment insurance for the week ending Aug. 20 was unchanged at 3.0%.
The state-by-state breakdown in claims, which is also released with a lag, showed the biggest gain the week ended Aug. 20 was in Pennsylvania, where claims grew by 1,904. The state cited increased layoffs in construction and services.
Massachusetts, with a decline of 1,627 the week ended Aug. 20, had the largest drop in claims. No details were provided.
Productivity Revised Lower
Nonfarm business productivity dropped at a 0.7% annual rate in April through June, revised down from a previously estimated decrease of 0.3%.Productivity is output per hour of all workers, and the second-quarter decline of 0.7% followed the first-quarter unrevised drop of 0.6% amid the economy's sharp slowdown.
At 9.1%, unemployment is high, holding the economy to a listless pace two years after the recession ended.
The Federal Reserve has cut its projection on economic growth into 2012 and expects joblessness to remain elevated at the end of next year.
With worker efficiency falling and costs rising, companies have less incentive to add employees as they try to protect their margins.
The second-quarter productivity decline was greater than expected. Economists polled by Dow Jones Newswires had forecast a 0.6% drop.
The revision was caused by the government's earlier downward adjustment to economic growth. Gross domestic product grew only 1.0% April through June. That meant nonfarm business output rose just 1.3% in the second quarter, revised down from an originally estimated 1.8% gain. Hours worked rose by an unrevised 2.0%.
Unit labor costs climbed at a 3.3% annual rate in the second quarter, revised up from an originally reported increase of 2.2%. Economists had expected the revised data would show a 2.5% increase. First-quarter costs surged an upwardly revised 6.2%.
Labor costs make up a big part of a company's expenses and are considered an important gauge of inflation. However, due to the economy's weakness, prices are expected to rise at a subdued pace in 2012.
Quote of the Day from Dave Ramsey.com:
When you discover your mission, you will feel its demand. It will fill you with enthusiasm and a burning desire to get to work on it. — Stone W. Clement
No comments:
Post a Comment