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Jobs data disappoints, but traders are focused in on the House of Representatives vote on the bailout today. Nonfarm payrolls were expected to be weak given other data on the economy and the actual data confirmed concerns about a recession. However, after the Senate passed a new bailout package this week, the feeling is that the House will do the same.

Nonfarm payrolls were expected to show a decline of about 100,000 in September. However, this proved to be too optimistic with the actual loss of jobs coming in at 159,000. Payrolls have decreased every month in 2008 and September’s decline was the largest since March 2003. Nearly all sectors of the economy saw jobs losses, led by the services sector which lost 82,000 and manufacturing down by 51,000. The concern is that layoffs in the financial sector will accelerate in October. Year on year, payrolls are down 0.2 percent.

Inflation has taken a back seat to economic growth, but this doesn’t mean there aren’t concerns about pricing pressures. Average hourly earnings rose 0.2 percent in September, but this was a tenth below expectations. The unemployment rate from the household survey remained at 6.1 percent as expected. Interestingly, traders weren’t discouraged by the data and have pushed stocks higher on the session. Part of this has to do with the negative news being priced into stocks already, but the majority of Friday’s strength has to do with the belief a bailout package will be passed today by the House of Representatives.

On Wednesday, the ISM Mfg. Index came in well below expectations at 43.5, a sign that a recession was taking hold in the manufacturing sector. Today’s release of the ISM Non-Mfg. Survey wasn’t nearly as negative coming in at 50.2, which was 2-tenths above expectations and down 4-tenths from August.

With new provisions in the bailout package, most analysts believe the deal will make it through the House this time. One major change was the increase in FDIC insurance to $250,000 per institution from $100,000. The idea is that investors will keep their money at banks, which provides some liquidity to the financial markets. However, a seizing up in credit lending is needed to keep the economy from falling into a deep recession.

Oil prices have shown little movement Friday with crude up just 33-cents in midday trading, just above $94 a barrel. On Thursday, crude prices fell with the stock market on the view the global economy is slowing and that this will lead to a drop in demand for this commodity. Many analysts feel that current estimates for global demand are way too high and that as these are adjusted, oil prices are likely to fall further.

Next week’s economic calendar will not be as heavy, but traders will be listening intently to Fed comments. Many economists now feel that a rate cut is in store and that it could be announced before the next FOMC meeting on Oct. 28-29. Though this isn’t going to solve economic problems, most economists feel the economy could use the help and that dropping rates further will not create problems with inflation. Mr. Bernanke and several other Fed leaders are set to speak next week and their comments could have a large impact on trading.


Jody Osborne

Senior Staff Writer & Options Strategist

Optionetics.com ~ Your Options Education Site

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