By Carlos Guillen

Investors appear to have reached a limit and are taking a cautious stance at the moment as they await tomorrow's jobs numbers, which may give us all a sense of where the economy currently stands. Today's initial claims data was a bit encouraging, but will likely not be enough to significantly affect the unemployment rate tomorrow. However, with productivity sliding, employers may have to begin hiring more, and this certainly bodes well for the unemployment rate down the road. But, perhaps putting more pressure on the market today was the less than expect services index, which implied that the economy had lost some momentum.

While Monday's data from the Institute for Supply Management (ISM) showed that US economic activity in the manufacturing sector (PMI) landed stronger than expected, ISM data posted today showed that economic activity in the non-manufacturing sector (NMI) expanded at a slower pace than expected in April, giving an indication that the largest part of the economy will have difficulty picking up as job growth stalls. The ISM non-manufacturing index fell to 53.5 in April from 56.0 in March, landing lower than the Street's estimate of 55.5 and representing the lowest level in four months. On the positive side, given that a reading above 50 signals expansion, today's reading continues to demonstrate a growth. Nonetheless, expansion among the service industries may be moderating after a surge in the first quarter that coincided with the strongest pace of job growth in six years.

Initial Claims data posted earlier today was a bit encouraging, as the result was better than expected, making a sharp reversal. According to the Labor Department, initial claims during the week ended April 28 totaled 365,000, decreasing from the 392,000 revised figure reported for the prior week and landing above the Street's estimate of 375,000. The sharp drop in initial claims may serve as some proof that the prior three weeks of high initial claims levels were likely caused by the timing of the Easter holiday rather than by deterioration in employment. Clearly, this result is helping to assuage investor's concerns that the jobs situation is worsening, but tomorrow's jobs numbers will certainly bring clarity to the issue, and judging from ADP's 119,000 private sector jobs estimate posted yesterday, it is not looking too good in our opinion.

Perhaps giving some hope to the jobs market was that productivity of U.S. workers fell in the first quarter, giving an indication that businesses are reaching a limit in terms of how much they can squeeze out of their employees. According to the Bureau of Labor Statistics, worker productivity (the measure of employee output per hour) declined at an annual rate of 0.5 percent in the first quarter of 2012, landing higher than the Street's estimate calling for a decline of 0.8 percent. Despite missing estimates, the drop in productivity may be suggesting that more hiring will be needed if economic output is to increase.

At the moment equities are hitting resistance, with the Dow Jones Industrial average coming close to testing the 13,300 level. A good jobs number tomorrow may just push the Dow above this level, but a bad number may cause another day in the red.

Surprise Services Setback
By David Urani

After a surprisingly good reading on manufacturing on Tuesday from the ISM, nobody really expected the services index to trip up but that's what it did. The headline reading fell down to 53.5 from 56.0, which was the slowest since December and it was the biggest drop in a year. The main culprit was new orders, which were down to 53.5 from 58.8, and employment also weakened to 54.2 from 56.7. That being said, it wasn't all bad, as exports rose to 58.0 from 52.5 and input prices fell down to 53.6 from 63.9.

Given a swath of mixed result, and in some cases contradictions in economic data, I have to wonder if seasonal adjustments following that warm winter are still factoring into the data. There had been plenty of signs that manufacturing would contract in April yet ISM said it didn't, and there were few signs that services would slow this much.

The same goes for the recent jobless claims result which showed that unexpected jump to 388k from 362k at the begging of April, and which abruptly dropped back down to 365k from 392k in the latest reading this morning. There just didn't seem to be a solid explanation for the up-spike, and you have to wonder if there was a seasonal anomaly.

It all makes tomorrow's employment report more tough to predict than usual.