Friday, May 4, 2012
The weekend presidential election in France will likely see the
incumbent lose his job and heighten uncertainties about Europe's
ability to come to grips with its problems. But economic reports
today show that the region's economic growth prospects may be
weaker than many have been expecting.
The Euro-Zone PMI readings came out weaker than expected this
morning, likely confirming that the region's economy remained in
recessionary territory at the start of the second quarter, the
third quarter in a row of negative growth. Lack of growth makes it
difficult for the region's leaders to address its mounting fiscal
problems.
But as disconcerting as the European news is, the market's
attention today is focused on the home front, with this morning's
weaker-than-expected April non-farm payroll report putting the
spotlight on the labor market. This report is in-line with what we
saw from
ADP
(
ADP
) on Wednesday and the Bureau of Labor Statistics (BLS) in
March, but fails to answer the seasonality vs. fundamental weakness
debate going on in the market ever since the March miss.
The government agency announced April non-farm payroll gains of
115K, below expectations of 165K and March's 154K level. The March
tally was revised higher from the original 120K level. The number
of job gains in March and February were revised upwards by a
combined 53K. Private sector jobs totaled 130K in April, along the
lines of what we saw from ADP on Wednesday and in the March reading
from BLS.
The unemployment rate, which comes out of the Household survey,
dropped to 8.1% from 8.2%. The average workweek remained unchanged
at 34.5 hours, while average hourly earnings remained unchanged
compared to the 0.2% increase in March. The labor force
participation rate, whose low level in this recovery is generally
cited by detractors of the down-trending unemployment rate as
evidence of discouraged workers, dropped to 63.6% from 63.8% in
March.
Today's report was expected to confirm that the seasonal factors
were behind the recent run of soft economic readings, particularly
on the labor market front. We did not get evidence of that, which
means that we will have to wait longer to get conclusive evidence
favoring either side in the ongoing seasonal vs. fundamental
debate.
The overall tone of recent economic data, including this BLS
report, has been very mixed, making it difficult to settle the
debate. We got a sharp drop in weekly Jobless Claims, but the BLS
and ADP data were disappointing. We got good vehicle sales, solid
manufacturing ISM, but the services ISM was on the soft side.
It is difficult to draw firm conclusions from such data. I don't
think this report improves the odds of further Fed QE, but the
market has typically been seeing that silver lining in all weak
economic readings.
In corporate news, we got better-than-expected earnings from
Estee Lauder
(
EL
) on in-line revenue.
AON
(
AON
), the insurance broker, missed earnings expectations on in-line
revenue.
LinkedIn
(
LNKD
) posted better-than-expected results after the close on Thursday
and announced an acquisition.
Sheraz Mian
Director of Research
AUTOMATIC DATA (ADP): Free Stock Analysis
Report
AON PLC (AON): Free Stock Analysis Report
ESTEE LAUDER (EL): Free Stock Analysis Report
LINKEDIN CORP-A (LNKD): Free Stock Analysis
Report
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