Economic Watchdog, December 1
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December 1, 2008
Economic news will be the focus this week with a number of key reports on tap, culminating with the employment report on Friday. Traders will also be digesting retail sales numbers with the holiday shopping season kicking off last Friday. Discussions in Washington will also continue with automakers pleading their case for bailout monies. After such large gains in stock prices the past five trading sessions, we could see some selling this week, especially if economic news comes in below expectations.
Below is the economic calendar for the week:
Monday: ISM Mfg. Index, Construction Spending
Tuesday: ICSC-Goldman Store Sales, Redbook, Motor Vehicle Sales
Wednesday: MBA Mortgage Applications, EIA Petroleum Status, Challenger Job-Cut Report, ADP Employment Report, Productivity and Costs, ISM Non-Mfg. Survey, Beige Book
Thursday: Chain Store Sales, Monster Employment Index, Jobless Claims, Factory Orders
Friday: Employment Situation, Consumer Credit
Monday got off to a rough start with a lower than expected reading in the ISM Mfg. Index. In October, this measure of manufacturing activity fell to 38.9, which is well into contraction territory. A reading below 50 is considered a state of contraction. In November, the news got worse with the index falling to 36.2, which was below expectations for a smaller decline to 38.4. This puts the index at a level not seen since early 1982.
Inside the report, the production component fell to a record low at 31.5 with new orders also nearing record lows at 27.9. The prices paid index fell sharply once again, dropping 11.5 points to 25.5. This points to demand falling sharply and this is a major concern for economists. Employment remained weak at 34.2, but at least it didn’t see huge declines, down only 2-tenths from October. Nonetheless, this still points to a sharp drop in nonfarm payrolls for the month.
Construction spending in October also fell more than expected, down 1.2 percent, 3-tenths more than estimates. The decline was led by a 3.5 percent drop in private residential outlays, a sign that problems in the housing sector are continuing. In fact, single family construction fell 4.6 percent during the month. This report, along with several other releases, points to a sharp decline in fourth-quarter GDP.
On Wednesday, the ISM Non-Mfg. Survey will be released with expectations for a reading of 43.0. This would be a drop of 1.4 points from October and down sharply from a figure above 50 in September. This economic slowdown has hit quickly and with a lot of gusto and this is why many economists are fearful that the recession will be deep.
The employment sector will be the main focus this week with several reports on the jobs market due out. Of course, the main report will be Friday when the November employment data is released. Jobless claims have been climbing the past few months with more than 500,000 new claims filed each week. This points to weakness in nonfarm payrolls as well with estimates for payrolls to fall by at least 300,000 during the month. The unemployment rate is also expected to continue higher with estimates for a gain of 2-tenths to 6.7 percent in November.
Another focus this week will be consumer spending with the holiday shopping season kicking off last Friday. Initial reports show strong traffic at retail stores as well as online, but economists say this is because of deep discounts; something that retailers might need to continue in order to keep consumers shopping. The National Retail Federation stated that sales online and at retail stores rose 7.2 percent this past weekend compared with the year ago period. Overall, the NRF expects sales growth of 2.2 percent, which would be the weakest holiday sales in six years. Others are more pessimistic, expecting retail sales to see their worst performance in nearly 20 years.
Jody Osborne
Senior Staff Writer & Options Strategist
Optionetics.com ~ Your Options Education Site
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