The U.S. services sector grew at a moderately faster pace in August, but the crowd’s not paying attention. The better-than-expected rise in the ISM’s non-manufacturing index is taking a back seat to Friday’s news of flat job growth and renewed fears of mounting economic challenges in Europe and the Continent’s ongoing push for fiscal and monetary austerity. Focusing on the negative isn’t surprising, but today’s ISM report keeps hope alive, if only slightly, that the problems in the U.S. will bring a mixed bag of macro results rather than an outright recession.
The Trouble With Tax Cuts
Job growth stalled in August, manufacturing activity isn’t faring much better, the demand for liquidity and safety is on the march again, and the trend for U.S. exports may face new headwinds if economic growth in emerging markets suffers, as some analysts predict. What’s a politician to do these days? Lean on the tried-and-true policy response, of course.
Book Bits For Saturday: 9.3.2011
● The Arrogance Cycle: Think You Can’t Lose, Think Again
By Michael K. Farr and Edward Claflin
Summary via publisher, Lyons Press
What is the arrogance cycle? We’ve just lived through it. As market bubbles build, our confidence level rises (dis)proportionately. Everyone wants in on the action. We want to believe Wall Street, and once we do, the inevitable happens. The only problem was that it was all artificial. In The Arrogance Cycle, Farr examines the forces at work on individuals and markets and explains in clear, concise layman terms how we got to where we are.
Job Growth Takes A Dive In August
Today’s employment report is dismal. It may not be fatal, but it’s the most discouraging update for jobs from the Labor Department since the Great Recession was formally declared dead and buried as of June 2009.
Manufacturing Growth Weakens In August
The first major economic report for August offers no comfort for thinking that we’ll break free of the economy’s sluggish growth phase any time soon. Today’s update on the ISM Manufacturing Index reflects an expansion in the sector, but only slightly. The index slipped to 50.6 last month, down from 50.9 in July. A reading above 50 indicates expansion, but with the index declining to its lowest level in more than two years there’s nothing dazzling here.
Jobless Claims Fell Last Week, But So What?
New jobless claims fell by a seasonally adjusted 12,000 last week to settle at 409,000, but no one’s going to see that as much more than another round of statistical noise. This leading indicator of economic activity has been stuck in a rut for months and it’s going to take more than one sizable downshift to convince the crowd that something’s changed. It doesn’t help that there’s another one-time event in the mix. Some of the drop is reportedly due to the end of the Verizon strike, which pushed new claims higher in early August. But the same factor in reverse had the opposite effect a few weeks back. Round and round we go.
Major Asset Classes | August 31, 2011 Performance Update
The summer from hell may be history, but the wounds still smart as stocks took another beating in August. For the fourth straight month, equity markets around the world tumbled. U.S. stocks (Russell 3000) were down by a hefty 6.0%, the deepest monthly decline since May 2010. Foreign equities in unhedged dollar terms fared even worse, with developed markets (MSCI EAFE) off by 9% and emerging markets (MSCI EM) down by 8.9%. In other words, it’s been close to non-stop selling for stocks since May.
Redefining Triple-A Credits
Are Springleaf Mortgage Loan Trust 2011-1 bonds safer than U.S. Treasuries? Yes, according to Standard & Poor’s. Bloomberg reports: “Standard & Poor’s is giving a higher rating to securities backed by subprime home loans, the same type of investments that led to the worst financial crisis since the Great Depression, than it assigns the U.S. government.”
Stuck In Neutral
Private nonfarm employment growth slowed in August, according to ADP. “Today’s ADP National Employment Report suggests that the trend in employment moderated somewhat in August at a pace below what would be consistent with a stable unemployment rate.” That’s in keeping with the recent slippage in economic activity generally, and so it’s not terribly surprising. Today’s numbers suggest that we should moderate our expectations for this Friday’s employment report from the government.
Are Consumer Confidence Indices Useful As Leading Indicators?
Consumer confidence fell to its lowest level in more than two years, the Conference Board reports. That’s a discouraging sign for the economy. No one’s really surprised, given the various ills weighing on the economy, although some analysts doubt that such measures are all that valuable. “Consumer confidence usually is not a good indicator of spending,” Edward Meir, MF Global senior commodities analyst, tells AP. “People may say they don’t feel great but they still spend.”