Market Commentary

Markets were relatively quiet yesterday
February 04, 2010

Markets were relatively quiet yesterday digesting recent gains, nervously awaiting tomorrow’s employment release.  In my view yesterday’s data reinforces the belief job creation is about to occur.

The private ADP employment survey suggested companies eliminated 22,000 jobs in January, the smallest number drop since February 2008. Analysts had expected a 30,000 decline. Moreover December’s jobs losses were revised lower to 61K from 84K.

The 50.5 reading for the ISM non manufacturing index was nominally lower than the 51.0 expected reading; the sub indices in my view were encouraging.  The New Order Index rose to 54.7, the highest level in two years.  The employment index rose 44.6, its highest level since August 2008.  Fifty is the level that denotes either an expanding or contracting sector.

Will there be an upside surprise in January’s jobs data?  As noted the other day, analysts are expecting a 15,000 increase in nonfarm payrolls, the second month in three the economy has created jobs.  I will also write this is the first time in 26 months a positive number is forecasted.

I have written a gazillion times companies panicked last year and fired too many workers fearing for their survival. Of the approximate 7.2 million jobs eliminated since December 2007, 5.3 million were shed from October 2008--July 2009.  Never in history has such dramatic job losses had occurred.  During the two previous “killer recessions” of 1973-74 and 1981-82 which both last sixteen months a total of 1.4 million and 2.8 million jobs were lost respectively

Most will conclude the underlying strength in the economy is improving. Work place productivity is huge, primarily the result of the strongest growth in the economy in 6 ½ years and the decimation of the labor force.  Make more stuff with fewer workers.  But is this really the case?

As noted several times I believe employers are delaying hiring people until the outcome from Washington is known.  Companies are utilizing temporary workers to fill vacancies, evidence by the fact that such employment has risen for five consecutive months, the longest streak since 2005.

Markets are fascinating as they reflect all variables in life…both real and imagined.

Today productivity data, factory orders and weekly jobless claims are released.

Last night the foreign markets were down. London was down 0.71%, Paris down 0.69% and Frankfurt down 0.46%.  Japan was down 0.46% and Hang Sang down 1.84%.

The Dow should open nominally lower on sovereign debt concerns of Greece, Spain and Portugal.  The 10-year is up 7/32 to yield 3.68%.