Economic news trumps the Senate’s passing of a bailout package. Data this week has been disappointing and this doesn’t leave traders feeling confident about Friday’s jobs data. On Wednesday, second tier releases about the jobs market were mixed and data on the manufacturing sector was disappointing. Thursday’s data was also negative with factory orders plummeting and jobless claims hitting multi-year highs.

The economy is starting to show weakness in nearly all areas, which is evident by the data released this week. The housing sector has been one of the main reasons for problems in the economy and mortgage applications data continued to show this weakness. For the week ending September 26, mortgage applications fell by 11 percent to 304.8. Refinancings really tanked, off 35 percent despite little change in mortgage rates. Early in the week, data on home prices showed continued declines with most analysts not seeing signs of a bottom yet.

With the employment situation report due out Friday, we got several second tier jobs related reports on Wednesday. The ADP Employment Report showed a decline of just 8,000 private nonfarm payrolls. This was better than expected with estimates for a decline of 100,000 nonfarm payrolls for the month of September. The BLS report does included government jobs as well, but even including these, the ADP report points to a figure better than expected. However, job cut announcements picked up during the month to 95,094 compared with 88,736 in August. Job cut announcements are expected to increase in October as the economy slows further.

Jobless claims for the week ending September 27 rose by 1,000 to a level of 497,000. This is the highest level for jobless claims since in seven years when claims shot higher following the 9/11 attacks. The four-week moving average sits at an elevated level of 474,000. Hurricane claims did impact this report, but even so, this data does little to change the view that the U.S. economy is in or heading into a recession.

Manufacturing data has worsened dramatically of late with the ISM Mfg. Index in September down more than six points to 43.5. Estimates were for a flat reading near 49.5 with a figure below 50.0 a sign of contraction in the manufacturing sector. Within the report, new orders fell 9.5 points to 38.8 with production down 10 points to 40.8. The employment component did tank as well, coming in at 41.8 from 49.7.

Construction spending was actually better than expected in August, coming in flat when a decline of 0.5 percent was expected. This data is getting very little attention since a lot has changed since August. Factory orders in August showed a different picture, falling 4.0 percent when a decline of 2.5 percent was expected.

Oil prices are on the decline Thursday with crude down nearly four dollars below $95 a barrel. On Wednesday, weekly inventory data showed a gain of 4.3 million barrels in crude. Gasoline stocks were also up, gaining 900,000 barrels, though distillates were off 2.3 million barrels. Refineries continued to operate at low levels at just 72.3 percent with shutdowns due to Hurricane Gustav still creating problems. Prices for crude are well off their highs from a few months ago on the outlook that the global economy will slow demand.

Thursday night, the Senate passed its version of the bailout package. This legislation was full or pork, but did include a change in the amount the FDIC will insure to $250,000 from $100,000. This is a benefit because it will convince investors to keep cash in the bank rather than taking out amounts above $100,000 on fears they could lose it. Liquidity is needed in the financial markets so that day to day activities can continue without a hitch. Now Congress will have to pass the bill with a vote expected tomorrow. Most believe that the bill will pass and this should lead to some strength in stocks, but there are a lot of problems with the economy that could keep the bulls at bay throughout the rest of 2008.


Jody Osborne

Senior Staff Writer & Options Strategist

Optionetics.com ~ Your Options Education Site

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