September 5 – A lot of employment data hit Wall Street this morning, sending a mixed message to traders about our nation’s overall jobs outlook. As such, traders will look to tomorrow’s government monthly jobs report to provide some clarity. Stock futures are mixed and choppy as traders try to sort out the meaning of this morning’s data. The VIX is trading near 21 at this hour, while the dollar index is weaker – trading near 101.1 – as it follows Treasury yields lower. Yields on 10-year Treasuries are trading at a one-month low near 3.73%, while yields on 2-year Treasuries are trading at a fresh 16-month low near 3.72%. The yield curve inversion flirted with going positive at times yesterday, and it’s doing so again this morning as well. Crude oil prices are bouncing a bit following big losses of the past couple of days, while the grain and oilseed markets are pulling back after their recent short covering rally.
This morning’s ADP employment report revealed that the private sector created just 99K jobs in August, down from analyst expectations of 140K. That’s the lowest number posted in 3-1/2 years. Furthermore, the July number was revised to 111K jobs created, down from the 122K originally reported. The correlation between the ADP report and numbers from the government’s monthly jobs report has been poor, but this raises the risks that we could see a low number tomorrow as well. Furthermore, this morning’s Challenger Job-Cut report revealed that firms announced potential layoffs of 75,891, up from 25,885 the prior month. Firms are required to announce potential layoffs that might occur over the next several months, but it doesn’t mean that we’ll see that many. Yet, a tripling of the number from month-to-month signals elevated concerns among firms. That was the bad news.
First time claims for unemployment benefits fell to 227K in the week ending August 31, down from 232K the previous week, and below analyst expectations of 230K. The four-week moving average for weekly claims slipped lower to 230K, down from 231.75K the previous week. These weekly numbers continue to chop around normal levels for this time of year. Continuing claims for the week ending August 24 fell by 22K to 1.838 million. The four-week moving average fell by 8,250 to 1.853 million during the week. Other data released this morning showed that nonfarm productivity rose at an annual rate of 2.5% in the second quarter, up from the 2.3% originally reported, and exceeding analyst expectations of 2.4%. That allowed unit labor costs to fall to an annualized growth rate of 0.4% in the second quarter, down from the 0.9% originally reported, and down from analyst expectations of 0.8%. This was the good news released this morning – weekly jobless claims remain relatively low, and wage inflation pressures are in decline. Fed fund futures increased the odds slightly of a 50-basis point rate hike in two weeks following the release of this morning’s data, putting those odds at 45%.
Stimulus works in the near-term. Version two of China’s trade-in stimulus program created demand for new cars in August. Industry data revealed that passenger car sales rose 11% month-on-month in August, although that still leaves them down 1% year-on-year. Electric vehicle sales rose 16% month-on-month, while being up 42% year-on-year. Car dealership inventories fell by 3.2% in August as sales picked up. The economy can’t lean purely on government subsidy programs. Eventually, we need to see consumer confidence improve. But the data does provide a ray of hope in an otherwise bleak economic outlook.
StoneX released the results of its September customer survey Wednesday afternoon, raising both its corn and soybean yield estimates modestly from August. The national corn yield was pegged at 182.9 bushels per acre, up from 182.3 the previous month. The national soybean yield was pegged at 53.0 bpa, up from 52.6 bpa the previous month. The numbers tell us two things. First, they say that our customers did not see significant yield loss from the late-month heat and dryness in the Midwest. Second, they say that yield potential remains high – even creeping higher as crops benefited overall from a primarily mild August, despite the dryness. Problem areas do exist, but there are portions of the Midwest that have extremely good crops that are offsetting the lost production of those problem areas. A couple of other private surveys out this week have revealed similar results, increasing the confidence that this year’s crops will be big, creating a significant storage problem if we have a fast harvest, which now appears likely. That will end up pushing more bushels onto the market to keep them moving. I’ve previously stated that the market rarely confirms a harvest low prior to becoming comfortable with the size of the crops. USDA will weigh in with official estimates on September 12th, but the consistency of the private estimates released thus far communicate to traders that we have a pretty good feel for the size of this year’s crops. Now it’s up to the combines to verify the estimates.
