Market Commentary

Markets were relatively quiet following mixed economic data.
January 06, 2010

Markets were relatively quiet following mixed economic data.  Pending home sales plunged however most believe this was the result of the expiration of the home buyers’ tax credit which was later extended until April.  Auto sales on the other hand were strong and on the aggregate posted their first quarterly improvement since the last three months of 2006.

The rise in auto sales should not be a surprise if one logically looks at the environment.  Annualized auto sales are now forecasted at an 11.3 million rate, up from December’s 2008 10.3 million pace.  Total 2009 industry sales may have totaled 10.4 million units, the fewest since 1982 according to market researcher Edmunds.com.

US sales were 13.2 million in 2008 after averaging 16.8 million this decade through 2007 as per Autodata Corp.

Depending upon the source the average age of car on the road is between 8 and 10 years.  The number of licensed drivers has increased about 25% since 1982 as per industry research.

It is against this backdrop—old cars, more licensed drivers, and the fewest amount of cars sold since 1982—why this increase in auto sales should not be a surprise.  Perhaps this falls under the guise that most often the most obvious conclusions are ones that are ignored.

Speaking of potential obvious conclusions, consensus is now expecting no change in December’s nonfarm payrolls.  As widely noted approximately 7.3 million jobs have been lost since December 2007. The vast majority of these job losses--5.3 million—were lost between October 2008 and July 2009 when companies panicked and fired a gazillion workers to ensure their survivability.

To place these job losses into proper perspective, during the two previous “killer recessions” of 1973 and 1982 which both lasted 16 months a total of 1.4 million and 2.8 million jobs were lost respectively.

Can I remotely suggest this unexpected increase in hiring is also logical given the speed of these massive layoffs that completely decimated companies’ workforces?

Today the ADP Private Employment Survey is released. This former top tier indicator is suggesting private employers eliminated 75,000 workers in December.  However as inferred, the correlation between this private survey and the national BLS report is low.  Over the first eleven months of the year the ADP survey was weaker than the BLS report nine times including the last seven months in a row.  The average miss during these seven months is 97,000.

Also released today is the ISM Non Manufacturing Index, Challenger Job Cuts, and the Minutes of the December FOMC meeting.  As widely noted the ISM Non Manufacturing Index surprisingly fell below 50 in November, the level that denotes an expanding or contracting sector.  Consensus is expecting a 50.5 reading.  Will it again surprise investors?

To write the obvious all data points are scrutinized in an attempt to discern the strength of the recovery.

Last night the foreign markets were mixed. London was down 0.26%, Paris down 0.10%and Frankfurt down 0.14%.  Japan was up 0.46% and Hang Sang up 0.62%.

The Dow should open nominally lower over sovereign debt fears of both Greece and Iceland are again in the news. The 10-year is off 3/32 to yield 3.77%.