Afternoon Note
By Jennifer Coombs, Research Analyst
12/4/2014 1:40 PM
The streak of positive performance among the major US equity indices ended today thanks to comments out of the European Central Bank (ECB). ECB President Mario Draghi noted in a press conference this morning that the bank will keep interest rates at record lows and said that monetary stimulus, the expansion of the balance sheet and the outlook for price developments will be reassessed, though not executed, early next year. Draghi also said that the bank sharply lowered its economic growth forecasts, stressing that the risks remain on the "downside". The ECB lowered gross domestic product (GDP) growth estimates for fiscal year 2015 to +1.0% from the prior estimate of +1.6% and for 2016, GDP growth of +1.5% from an earlier estimate of 1.9%. Fears of further sovereign debt issues sent investors running. The initial jobless claims came in much better than the previous week, but this did little to lift the market. On a day light with economic data, there were a few other components that may point to an improved employment report tomorrow morning.
Firstly, Challenger & Gray released their monthly Job Cut Report which counts and categorizes announcements of corporate layoffs based on mass layoff data from state departments of labor. The November report’s layoff count fell to 35,940 in November compared to 51,183 in October and 45,314 in November last year. Job cut announcements were heaviest in consumer products followed by health care and industrial goods. Going into December, employers have announced a total of 450,531 job cuts, to date. This is down about 5.8% from the 478,428 cut jobs at the same point in 2013. In fact, job cuts are on pace to close out 2014 at the lowest year-end level since 1997.
In advance of the jobs report out tomorrow, the Federal Reserve’s Beige Book provided a rather optimistic outlook on the hiring and employment levels in most of the twelve Fed districts. The information was all collected prior to November 24th, so it didn’t include the shopping data from Black Friday weekend. Overall the outlook was moderately positive for the national economy. Construction and real estate results were mixed, and inventories are seen in line with sales. Some improvement is expected in business investment and job gains were widespread. Hiring plans increased in New York, Chicago and St. Louis, and although labor market conditions are strengthening, Kansas City and Dallas noted that firms were having trouble retaining key workers. Most districts reported that firms had difficult time filling positions in IT and engineering, legal and health-care services, management, skilled manufacturing and building trades, and transportation and warehousing. Seasonal hiring was little changed over last year although higher rates of seasonal hiring picked up in New York and Chicago. Overall price and wage inflation remained subdued in the last two months as well. In this report, there are arguments for both hawks and doves within the Fed, and although the economy is improving, including the labor market, inflation still appears to be below target.
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Federal Reserve Beige Book – December 2014 |
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Atlanta |
Boston |
Chicago |
Cleveland |
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Business contacts positive, near-term outlook positive, retail and auto sales up, hospitality positive, real estate contracts flat, commercial real estate contracts up, new orders and production up in manufacturing, loan activity flat, cost and wage pressures subdued |
Business activity increasing, retailers and manufacturers report y/y gains in revenue, software/IT demand strong, residential market unsettled, home pricing lower, hiring more robust, pay levels generally up, general pricing up |
Overall economic growth moderate, contacts optimistic for 2015 but concerns over weak foreign growth and another severe winter, credit conditions on par, cost pressures eased, commodity pricing mixed, consumer and business spending up, construction & real estate positive |
Economy expanded at modest pace, manufacturers reported boost, demand for commercial construction up, consumer spending slow, auto gains modest, shale gas production high, coal production up slightly, credit demand higher, prices stable, payrolls mildly increasing, freight strong |
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New York |
Richmond |
Kansas City |
St. Louis |
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Economy has picked up at moderate pace, cost pressures abated, selling prices up, service and manufacturing sectors improving, labor markets strengthening, housing market soft, declines in delinquency and loan demand higher |
Moderate economic strength, manufacturing slowing, shipments and new orders up, inventories higher, retails sales higher, tourism on-pace, residential mortgage demand improving, commodity prices lower, coal flat, natural gas increased, hiring steady, wages and prices up |
Slight economic growth, most contacts expecting modest growth, consumer spending increased modestly, moderate growth in restaurants & tourism, manufacturing production higher and expected to strengthen, real estate activity up moderately, construction expected to rise, prices up, labor market tightening, energy outlook cautious |
Economic growth slowed slightly, retail contacts slow to moderately increasing sales, planned manufacturing activity largely positive, real estate markets remain weak, loan activity increasing, wages increasing at modest pace, prices and employment levels growing slowly, commercial and industrial real estate market conditions mixed |
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Dallas |
Minneapolis |
Philadelphia |
San Francisco |
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Economy expanded at solid pace, manufacturing increased overall but slowing demand, retail and auto sales mixed, services demand up, real estate activity strong, oilfield services still robust, employment flat-to-up, outlooks optimistic but some concern about lower oil prices long-term |
Economic growth moderate, increased activity in: consumer spending, tourism, all real estate, professional services, manufacturing, mining, and agriculture, energy and residential construction mixed, hiring outpaced layoffs, wage growth moderate, price increases subdued, increased wage pressures |
Business growth modest, moderate growth in manufacturing and staffing firms, retailers and autos showing some growth, tourist activity modest, new home sales down but existing home sales up, commercial real estate up, lending volumes modest, wages and prices flat |
Economic activity improved, overall price and wage inflation remained robust, retail sales and demand for services increased moderately, manufacturing activity pick up, agricultural activity mixed, real estate activity varied across the District, loan demand increased moderately |
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