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.
Director of Research
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