Economic Watchdog, July 2
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July 2, 2008
Data on jobs market highlights busy day for economic data. Data on employment Wednesday helped preview the employment report due out Thursday. Reports on crude inventory levels, factory orders and mortgage applications were also released this morning. Oil prices remain a focus of traders as well and rightfully so with the commodity continuing to hit record highs.
Oil prices rose above $144 intraday Wednesday, ultimately closing with a gain of $2.60 a barrel to $143.57. Part of the reason prices rose today was the decline in weekly inventory levels, which fell by 2.0 million barrels for the week ending June 27. Because of high crude prices, demand for oil has fallen 1.7 percent in the past year, but a weak dollar, speculation and supply/demand issues continue to keep upward pressure on oil prices.
The housing sector has been a major problem for the economy so traders are paying attention to anything related to housing. Mortgage applications for the week ending June 27 rose 2.8 percent to 342.8. A decline of 6-basis points in the 30-year fixed mortgage rate to 6.33 percent helped push the refinance index up 4.7 percent. Nonetheless, the sector is still in bad shape and it could take months for a bottom to be reached.
On Tuesday, the ISM Mfg. Index showed a surprise move above 50, easing concerns about the sector. On Wednesday, factory orders for May rose 0.6 percent, as expected. Though there remain concerns about the manufacturing sector, it does seem like we might have avoided a recession. However, if energy prices continue to rise, it could create some serious problems for the sector.
The June employment report is due out Thursday, a day earlier than normal due to the July 4th holiday. This means we got several second tier employment reports on Wednesday including the ADP Employment report and the Challenger Job-Cut report. The Monster Employment Index was also released for June, falling 3 points to 163. This data only added to the problems seen in the sector from the release of the ADP report.
The ADP data showed a decline of 79,000 nonfarm private payrolls in June. This is the largest drop for the ADP report during the economic downturn, adding to pessimism for Thursday’s employment report. The Challenger job cut report wasn’t much better, showing that 81,755 job cuts were announced in June. Though this was down from 103,522 in May, it is high enough to keep the outlook for job cuts pessimistic, especially with costs rising and consumer spending declining.
Record energy prices led to the major market indices falling into a bear market Wednesday, so it will be interesting to see how much of an impact the jobs report will have on stocks. Remember, Thursday is the last trading day of the week, but volumes are likely to be light and this could lead to some volatile trading.
Jody Osborne
Senior Staff Writer & Options Strategist
Optionetics.com ~ Your Options Education Site
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