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SOME THOUGHTS ON TODAY’S DATA

3 June 2009 by TPC 7 Comments

Markets were bombarded with economic news this morning and for the first time in a long time none of the reports came in “better than expected”. The ADP employment report came in worse than expected with 532K job losses. Factory orders came in at 0.7% which was worse than the 0.9% analysts had expected. And the ISM non-manufacturing number came in at 44 which was lower than the 45 analysts had been expecting.

The ADP is further sign that the jobs situation remains very strained. Though not nearly as consistent or important as the Non-farm Payrolls figure due Friday morning the ADP still shows a clear downtrend – not a welcome sign for those relying on a green shoot theory and a sharp housing rebound.

Factory orders showed some signs of strength, though worse than expected. Orders came in at 0.7% for the month. Durable orders jumped 1.7%. All in all, these are still very weak figures coming off of such a low base.

The ISM services report was particularly disappointing. A lot of economists were hoping for a much sharper rebound. The strength in Monday’s ISM did not translate into services strength. Although we’re seeing definite improvement off the November low the long-term trend is still down and the economy is still contracting rapidly.

Respondents to the survery had the following to say:

“Business remains strong despite the general economy.” (Health Care & Social Assistance)
“Continued pressures in the financial services industry are driving spending and expense decisions across the sector.” (Finance & Insurance)
“Our industry is in decline as we lag the general economy.” (Other Services)
“Business activities are still weak due to the economic conditions in the country.” (Wholesale Trade)
“Budget constraints continue due to the economy.” (Public Administration)
“Input costs continue to decline. Supplier lead times are as low as I have ever seen them. Consumers are buying but trading down to lower cost, and for us unfortunately lower margin items.” (Agriculture, Forestry, Fishing & Hunting)

All in all, the data was not good. The jobs situation could cast a cloud over this market for months to come. It’s nearly impossible to continue banging the drum on a housing recovery and the end to the credit crisis if consumers don’t start finding the jobs that can fuel their potential spending.

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7 Comments »

DWW said:

And yet if you look at the headlines for the major financial websites, the ADP and ISM were spun as positive numbers.

Here are the ADP numbers:

April ADP Numbers:
Previously Reported = -491K
Revised To = -545K

May ADP Numbers:
Expected = -525K
Reported = -532K

CNN Money: “Private-sector jobs fell 532,000 in May – worse than expected but better than in April – says payroll-processing firm ADP.”

MarketWatch: “The U.S. private sector eliminated 532,000 net jobs in May, the fewest jobs lost since November, according to the ADP employment index released Wednesday.”

Assuming the same rate of revision in the May number as we saw for the April number (April -491k to -545k) means that May number should be revised from -532k, to -590k. Even if it’s not that big of revision, we know it will be revised to more jobs lost than expected (I’ve never seen it go the other way).

I’m 60% long the market, 40% cash, but I still upsets me that the MSM is so misleading.

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# 3 June 2009 at 8:44 AM

TPC (author) said:

Everyone feels it is their patriotic duty to put things in a positive light. I get where they’re coming from, but flat out lying is a whole different thing. Just report the news.

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# 3 June 2009 at 8:57 AM

joe said:

TPC,

Re your comment that distressed debt was cheap, here’s a story from bloomberg saying that companies with debt trading at high spreads to treasuries have stopped buying back their debt because it’s gotten pricy.

I’d be interested in hearing why you think distressed debt is still cheap.

http://www.bloomberg.com/apps/news?pid=20601087&sid=ad0.MjQYNR1U

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# 3 June 2009 at 9:35 AM

TPC (author) said:

Joe,

It completely depends on the issue you’re looking at. And no, distressed debt is not nearly as attractive as it was a few months back. As you can imagine, since I am short equities here I am not expecting any appreciation in corporates either in the near-term. There isn’t a whole lot out there that looks cheap to me besides maybe some government bonds and who wants to own that garbage with the way they’re printing money….

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# 3 June 2009 at 9:39 AM

joe said:

TPC,

Thanks. I think some of the subprime mortgage securities are still cheap, since they’ve only rallied maybe 3 or 4 percent this year. But a lot of that stuff isn’t worth buying. I pulled out of levered loans and junk bonds around when you pulled out of equities.