Today it was revealed that all things may not be as rosy for the world’s largest economy.  Economic data released in the early New York session continued to run contrary to previous speculation that the U.S. may be exiting one of the worst recessions in history.  Now it seems that sentiment may escalate ahead of the monthly employment report set for 8:30 ET tomorrow morning.

Data Pessimism

According to the Institute for Supply Management (ISM) index, manufacturing activity slowed compared to earlier estimates by analysts.  The factory gauge dropped only slightly to 52.6.  However a closer look into the component figures and there is ample evidence for at least a little bit of worry.  Production dropped 6.2 points to 55.7 as new orders components were scaled back by 4.1 points to 60.8.  All of this means that manufacturers may be scaling back in order to see how things shape up in the fourth quarter before making any upside adjustments to labor and capital investment in the final quarter.  Moreover, it spells disaster for the V-shaped recovery proponents as softer labor markets will continue to be a drag to overall economic growth as steady and consistent consumption continues to come in weaker than expected.

The national manufacturing report was followed by an even less optimistic initial claims announcement that showed a worse than expected increase in people filing for first time unemployment.  For the week, experts had anticipated a continuation of what has been seen over the last month or so: continued improvement as company firings seem to have bottomed out.  However, soaring far above the four week moving average, the initial claims number rose by 551,000.  News surrounding the closing of the Saturn automobile brand is adding to the overall undertone as 13,000 positions are expected to be cut shortly after the company closes its doors at the end of the year.  The move by General Motors Co. follows the inability to unload the division as acquisition talks crumbled in the last seconds with U.S. based Penske Automotive Group.

What Can We Expect?

Given the rather weak employment readings from both the Labor Department and ISM releases today, market participants may be shifting to a negative bias for tomorrow’s highly anticipated report. Although official expectations are rather optimistic, at a drop of only 180,000 jobs, the reality may be far worse when taking into consideration that the previous 216,000 print in the previous month of August may have been vastly understated.  Even worse is the fact that the employment rate is likely to continue higher, on pace to print a fresh 26 year high of 9.8 percent as some in the marketplace expect a figure surpassing 200,000.  The scenario, if proven correctly, will help to build momentum for the U.S. dollar as positions in riskier assets like the Euro and British pound may be shed intraday.  However, should if we see a strong stabilization in the employment picture, at or below expectations, it may be enough to help revive strength in U.S. dollar selling.

Tags: Initial Jobless Claims, ISM Index, Saturn Closing, US Dollar, US Non-Farm Payrolls

This entry was posted on Thursday, October 1st, 2009 at 1:34 pm and is filed under Economic Indicators, US Dollar. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.