There is mixed hiring news that came out today-it looks like the Unemployment rate will stay at 9.1% on Friday.
Forget about profit, cash flow is King as companies are piling up cash not to be caught short like they were when the 2008 crisis began.
Here are the top financial stories of the day:
1) Stocks rise as service sector, private hiring grow-From USA Today
Stocks rose for a second straight day Wednesday after a trade group reported that the U.S. service sector continued to grow in September. Private company hiring also increased.
The Institute of Supply Management said its gauge of the U.S. service sector, which employs 90% of the work force, grew in line with Wall Street's expectations. The index measures the strength of health care providers, banks, real estate, and other businesses outside of manufacturing.
Payroll processor ADP said private companies added 91,000 jobs last month. That was a slight gain from August. ADP's figures do not always predict what the government's broad employment report, which will be released Friday, but they can often influence traders' expectations. Wall Street economists expect that the unemployment rate will remain unchanged at 9.1%.
The latest indications that the U.S. economy continued to grow pushed Treasury prices lower as investors moved money out of lower-risk investments. The yield on the 10-year Treasury rose to 1.90% from 1.82% late Tuesday. It hit a record low of 1.71% Sept. 22.
Some analysts said that Wednesday's gains were a continuation of a late day rally Tuesday sparked by reports that European officials are exploring a joint effort to support the region's struggling banks. That could limit the damage to the financial system should the Greek government miss a payment on its debt and trigger a default, which many traders expect. A default by the Greek government would cause losses for the region's banks, many of which have large holdings of Greek bonds that would plummet in value in the case of a default.
The reports, which came out after European markets closed Tuesday, triggered a late rally in U.S. stocks that prevented the S&P 500 from entering a bear market — a 20% decline from its April peak.
"The market is trading on sentiment right now, not fundamentals," said Rob Stein, head of Astor Asset Management. "People are hoping that the bounce yesterday means that we've hit a bottom, but the problems that were in the economy Monday haven't changed since then."
Cisco led the 30 stocks that make up the Dow with a 4.7% gain. Bank of America lagged, dipping 1.6%. The bank has lost 8% over the last week.
European stock markets rose broadly. Germany's DAX jumped 5%. Benchmark indexes in France and Italy rose 4%.
In U.S. corporate news, seed company Monsanto rose 4% after it announced that its fourth-quarter results beat Wall Street's expectations. Wholesale club operator Costco dropped 2.7% after its earnings came in at $1.08 per share, slightly below analyst's expectations of $1.10 per share. The company said it will raise its annual membership fees in November.
2) Service sector growth slows, employment mixed-From Reuters
Growth in the U.S. service sector was steady in September and private hiring picked up, suggesting the economy was not yet slipping into recession.
Optimism over Wednesday's data, however, was soured somewhat by news that employers last month planned to lay off the most workers in more than two years. The bulk of the intended cutbacks, however, are in the U.S. military and at Bank of America and are not directly related to recent weakness in the economy.
"The economy is not tipping into another recession but is instead stuck in the mud at a below-potential rate of growth," said Omair Sharif, an economist at RBS in Stamford, Connecticut.
The Institute for Supply Management said its services index ebbed to 53.0 last month from 53.3 in August. A reading above 50 indicates expansion in the sector. Details of the report were mixed, with orders rising but employment falling to its lowest level in nearly 1-1/2 years.
The drop in services employment, was however, at odds with a separate report from payrolls processor ADP showing overall private payrolls rose by 91,000, above economists' expectations for an increase of 75,000.
ADP said most of the gains, which exceeded August's count of 89,000, came from the service sector.
Economists weighing the two reports said it appeared there had been mild improvement in the labor market last month after the economy failed to add any jobs in August.
The government will release its closely watched national employment report for September on Friday. Nonfarm employment likely rose 60,000 as striking Verizon Communications workers return to payrolls, according to a Reuters survey, after being flat in August.
"The ADP report is generally not an accurate predictor of the Labor Department payroll data," said Daniel Silver, an economist at JP Morgan in New York. "However, the report is consistent with other recent indicators that have signaled recent improvement in the labor market."
MUDDLING ALONG
Investors on Wall Street were relieved the data had shown no further deterioration in the economy and bought stocks. Prices for the U.S. government debt fell, while the dollar weakened against a basket of currencies.
While the economy muddles along after a bleak August, the risk of a recession remains high as the debt crisis in Europe deepens. Some economists are predicting a downturn in the euro, which drag on the U.S. economy down, analysts warn.
Private sector business activity shrank in the euro zone for the first time in two years last month as new orders dried up, surveys showed on Wednesday.
Markit's Eurozone Services Purchasing Managers' Index (PMI) fell to 48.8 last month from 51.5 in August, its lowest reading since July 2009 and below an earlier flash reading of 49.1.
The U.S. economy grew at a 1.3 percent annual pace in the second quarter and data ranging from business spending to motor vehicle sales suggest that output could top a 2 percent rate in the July-September period.
The economy needs to grow by at least an annual rate of 2.5 percent and payrolls expand 150,000 a month on a sustained basis just to keep the jobless rate, now 9.1 percent, from rising further.
"There is modest growth in the economy, we are growing at a rate that's too slow for the unemployment rate to fall," said Mark Vitner, a senior economist at Wells Fargo Securities in Charlotte, North Carolina.
Last month, employers announced 115,730 planned job cuts, more than double August's total of 51,114, according to the report from consultants Challenger, Gray & Christmas, Inc.
The figure was the highest since April 2009.
"It is important to keep in mind that 80,000 cuts, or nearly 70 percent of last month's total, came from just two organizations: Bank of America and the United States Army," said John Challenger, chief executive officer of Challenger, Gray & Christmas.
"Neither of these cuts is directly related to recent softness in the economy."
3) The Big Number-From The Wall Street Journal
In the second quarter of 2011, nonfinancial companies in the Standard & Poor's 500-stock index generated $158 billion in cash flow from their operations after accounting for capital spending, a 13.6% increase from a year earlier, according to data gathered by S&P Capital IQ.
The figure also represents a 60.4% increase from the first quarter of 2009, a recent low, as companies navigated the depths of the recession.
That improvement is a testament to the pains U.S. companies have been taking to ensure their cash is coming in more quickly than it's going out.
The ability to generate cash may be the most important measure of a business's health.
Plenty of companies with paper profits have failed because they lacked the cash to keep operating.
At the most basic level, companies improve cash flow by collecting receivables more quickly and paying bills more slowly. If money is going out faster than it's coming in, a company must find a way to fund operations for those days in between.
The choices include cash on hand, bank financing or funds raised in the capital markets. The recent credit crunch threatened to stall even profitable companies because it left the latter two options so badly impaired.
One advantage to tracking cash flow from operations is that it has a clear accounting definition. That means it can be compared on an apples-to-apples basis from company to company.
Cash flow can also serve as the basis for calculating the corporate equivalent of disposable income.
Subtracting capital expenditures—or critical investments in things like plants and machinery—from a company's cash flow shows how much of its resources are left available for such purposes as paying dividends, financing buybacks, making acquisition or funding other investments.
Quote of the Day from Dave Ramsey.com:
The best executive is the one who has sense enough to pick good men to do what he wants done, and self-restraint to keep from meddling with them while they do it. — Theodore Roosevelt
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