10/2/2014
By Jennifer Coombs

We just can’t seem to catch a break in the first week of October. The market resumed its selloff on more geopolitical and world financial concerns. After days of protests, it appears as though a showdown is finally set to take place in Hong Kong. Hong Kong’s leader, Leung Chun-Ying, who is backed by Beijing, is ordering protestors to end their blockade of the city center, but protestors are still demanding that he step down by the end of Thursday. Although markets are closed in China for the national holiday, disruption of this magnitude continuing is quite disturbing since Hong Kong is among the major economic hubs in Southeast Asia. Argentina’s chief of the central bank has officially stepped down and the European Central Bank (ECB) left its benchmark interest rate on hold at 0.05%. All in all, optimism in the US remains pretty low going into the jobs report despite some hope that the jobs number may not be as bad as many anticipate.

There were fewer and fewer workers drawing unemployment benefits all month long, including the last week of September, which solidly points to an improvement in the labor market. Initial jobless claims fell by 8,000 in the week ended September 27^th to 287,000 which pulled down the 4-week average by 4,250 to 294,750. This is nearly 10,000 below the month-ago comparison. Continuing jobless claims confirm this improvement as well; in the week-lagged data, continuing claims fell 45,000 to a new recovery low of 2.398 million. The 4-week average also reached a new recovery low, down 20,000 to 2.441 million. Also, the fact that the unemployment rate for insured workers remains at a recovery low of 1.8% is encouraging. The most promising factor of all is that there are not any special influences on the weekly report, so that should firm up confidence for tomorrow’s employment report, although the markets don’t seem to agree.

Additionally, the monthly report on factory orders sent some rather mixed messages which some investors may have misinterpreted. Factory orders declined by 10.1% over last month after soaring by 10.5% in July – this was easily achieved as Boeing’s airshow orders last month heavily skewed the number to the upside. When both changes are taken into account, orders were flat for the month of August and give a blah outlook on the American manufacturing sector. The chart below shows the month-over-month changes; it all appears quite flat.

Excluding the transportation component where aircraft orders are tracked, factory orders edged 0.1% lower following a 0.7% decline in July. But in a slight offset, orders for nondefense capital goods excluding aircraft (shown in the chart below) –  which is a core reading on overall business investment – increased by 0.4%, which more than offset the 0.1% decline in July. Another positive reading was a solid 0.6% increase in total unfilled orders for the month, which have solidified as of late and which will give manufacturers some breathing room if new orders become stagnant. Total shipments are a negative in the summary, down 1.0%, but follow a 1.4% increase from July. Shipments in the nondefense capital goods ex-aircraft segment show a marginal 0.1% gain after July’s robust gain of 2.0%. This weakness in total shipments ended up lifting the inventory-to-shipments ratio by a basis point to a lean 1.30 from 1.29. This means that unfortunately inventory restocking won’t be a priority to manufacturers in the near-term. We note that various industrial releases have been trying to diagnose the issues in the manufacturing sector; all have shown volatility with a slight tilt to the upside and this report simply supports that theory.

Jennifer Coombs
Wall Street Strategies

Add a Comment!