Employment report disappoints, but traders remain optimistic about the future of the economy. Data leading up to the nonfarm payrolls report pointed to strength, but the Department of Labor report failed to match expectations. Other reports released this morning included data on factory orders and the ISM Non-Mfg. Index.
The focus this morning has been firmly on the payrolls data. Nonfarm payrolls did rise in November, but the gain of 39,000 payrolls fell well short of expectations for a reading of 168,000. At least October’s figure was revised higher to 21,000 claims to 172,000. The ADP report earlier this week did point to strong gains in private payrolls, rising by 93,000, but the private sector component of the DoL added just 50,000 payrolls.
One thing to look at when dissecting the payrolls data
is the average hourly workweek. Businesses tend to first offer longer hours before giving in to hiring more employees. Unfortunately, the average workweek was flat with October at 34.3 hours. Average hour earnings were week as well, staying pat after a 0.2 percent gain in October. The unemployment rate, which is figured by the household survey, rose 2-tenths to 9.8 percent when a gain of just a tenth was expected. The unemployment rate can be deceiving, as it tends to rise when jobs become more abundant because of the addition of job seekers. Interestingly, the manufacturing sector saw the largest decline in payrolls, off by 13,000 despite the fact regional manufacturing report has been mostly positive.
Speaking of the manufacturing sector, factory orders fell 0.9 percent in October, a tenth worth than estimates. Non-durable goods rose 1.5 percent, which was a pleasant surprise. This data can be volatile thanks to orders in civilian aircraft and defense aircraft.
The ISM Non-Mfg. Survey came in right on estimates for a reading of 55.0 in November, up from 54.3 in the prior month. This is the highest reading for this index in six months with strength found in new orders and unemployment. In fact, the employment component rose to 52.7, above the breakeven point of 50.0, yet we aren’t seeing these gains in the payrolls number.
Though the payrolls report was a disappointment, traders have taken it to mean the Fed will continue to stimulate the economy and this is likely a positive for the stock market. This is why stocks initial fell on the payrolls number, but ultimately closed the week with further gains. So far, December has been bullish and the next step is for Congress to extend the Bush tax cuts, which should bode well for equities.
Next week’s economic calendar is extremely light so it will be interesting to see if the focus returns to Europe and the debt problems present overseas. Traders will also continue to focus on the retail sector as the holiday shopping season progresses. So far, consumer spending has been a bit better than expected and this helped push retail stocks higher, despite a reprieve Friday.
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