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The economy might be on the mend, but traders won’t be convinced until the jobs market improves. The January employment report is set for release Friday with economists looking for a positive move in nonfarm payrolls. Preliminary data released ahead of this key report has been mixed, leaving traders in a selling mood.

The Challenger Job Cut report for January showed that 71,482 job cuts were announced during the month. This was up substantially from 45,094 in December, but well below the highs seen above 200,000 in the year ago period. Hiring intentions came in at 31,381, about 4,000 below December’s figure. Though not a major report, the job cut report data does follow a very similar pattern to jobless claims.

Jobless claims for the week ending Jan. 30 rose by 8,000 to 480,000 when estimates were for a reading of 455,000. This pushed the four-week moving average up by 11,750 to 468,750. This is the third straight week for a gain in this moving average after falling consistently for nearly a year. Continuing claims, which have shown a lot of improvement, rose by 2,000 to 4.602 million, though the four-week moving average was down 51,000 claims to 4.618 million.

The ADP Employment report on private payrolls showed a decline of 22,000 for January. This was an improvement from the 84,000 drop seen in December. However, this figure was revised higher to a loss of 61,000. This report measures only the private sector and though it doesn’t always closely follow the BLS report from month to month, the long term track record is correlated.

In December, economists were looking for the first gain in payrolls in nearly two years. However, this proved too optimistic with nonfarm payrolls falling by 85,000. Nonetheless, data for November was revised to a positive reading, albeit by just 4,000. This month, the outlook is similar with economists calling for a flat to slightly higher reading in nonfarm payrolls. The unemployment rate, which is measured by the household survey, is expected to rise a tenth to 10.1 percent.

One thing that is a positive for the economy in the long term, but hurting the jobs market in the short term, is productivity. In the fourth-quarter, productivity rose 6.2 percent following a 7.2 percent gain in the third quarter. Productivity growth helps protect profits, but also limits the amount of hiring that businesses need to do. Of course, President Obama is looking for ways to boost hiring with a $5,000 tax credit for each hiring being considered.

The retail sector is a direct casualty of a weak jobs market. Chain store sales data for January showed some strength in same-store sales, but most of this strength was for discounted merchandise, which means margins could suffer. Nonetheless, economists are pleased that retail sales in January should show gains. Retailers are showing mixed results Thursday following the release of same-store sales results by the nation’s chain stores. Some of the winners have been Macy’s (M), Gap (GPS) and TJMaxx (TJX). However, Target (TGT) disappointed, as did The Buckle (BKE).

The ISM Non-Mfg. Index for January rose slightly to a level of 50.5 from a revised reading of 49.8 in December. However, this did fall slightly short of expectations for a reading of 51.0. Any reading above 50.0 is considered a state of expansion with the services sector straddling this line for the past six months. The employment component of the report did rise a point, but remains in contraction territory at 44.6.

Oil prices have been on the decline on concerns about the global economy. The commodity is down more than 5 percent Thursday, trading below $73 a barrel. A report on crude inventory levels this week showed a 2.3 million barrel increase and the concern is a lack of demand from the global recession will hurt prices going forward. There are rising concerns about the fiscal health of several European economies, including Greece and Spain, and this has pushed the U.S. dollar to a seven month higher against the euro, which in turn hurt commodity prices.

Overall, the bulls are hoping that a better than expected gain in nonfarm payrolls Friday can stem the bearish sentiment seen in the major market indices Thursday.

Jody Osborne
Senior Staff Writer & Options Strategist       
Optionetics.com ~ Your Education Site

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