Sep 2, 2011

Weak Unemployment Report

September 2, 2011

Stocks are ending the week with a whimper after an extremely weak monthly jobs report . The country added zero jobs in August vs. expectations of an increase of 70K. This report is worse than the report indicates as up to 45K Verizon workers rejoined the work force after their strike ended. Nonfarm payrolls rose by 17K, but economists expected an increase of 110K. Yesterday the ISM Index (see chart below) came in at 50.6, slightly better than the 48.5 estimate, but just above the stall speed of 50. The upside for the market in the short run is that this may give the Fed the impetus needed to initiate QE3 at their September meeting.

Bank of America’s (BAC) stock has been strong after garnering an investment from Warren Buffet and announcing plans to sell a $3 billion stake in a Chinese investment over the past week. This morning BAC is down 7% this morning after the FHA announced they would be suing more than a dozen banks who misrepresented the quality of mortgage backed securities during the housing bubble. The FHA is seeking billions in compensation.

The White House released their economic growth forecast for 2011, and cut their GDP estimate from 2.7% to 1.7%. They are expecting unemployment to hold at the 9.1% level this year and 9.0% last year.

Oil is down this morning on expectations of economic weakness. WTI futures for October delivery are down to $88 this morning. Bonds and gold are both rallying.

Central banks are worried as measured by the record sum of deposits being sent to the Fed. “This shows a pervasive loss of confidence in the European banking system” said Simon Ward, Henderson Global. “Central banks are worried about the security of their deposits so they are placing the money with the Fed.”

Retail comps for August rose by 4.6%. Of the 25 retailers I follow, only 13 beat their comp estimates last month, the lowest level in over a year.

APAC markets were weak last night with the Nikkei losing 1.2%, ASX 1.5%, Kospi 0.7%, Hang Seng 1.8%, and Shanghai 1.1%. Only India’s Sensex bucked the trend, rising 1.9%.

Problems in the solar market continue as another panel maker, Solyndra, was forced to file bankruptcy this week. There has been significant pressure on the industry since European subsidies have declined and the economy weakened. This bankruptcy is notable because just less than two years ago the Administration trumpeted the company as a model for job generation, going so far as to guarantee a $535 million grant (loan guarantee) to the company.

This is the kickoff weekend for College Football and Labor Day. Enjoy!

Have a great weekend.


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