+

Cookies on the Business Insider India website

Business Insider India has updated its Privacy and Cookie policy. We use cookies to ensure that we give you the better experience on our website. If you continue without changing your settings, we\'ll assume that you are happy to receive all cookies on the Business Insider India website. However, you can change your cookie setting at any time by clicking on our Cookie Policy at any time. You can also see our Privacy Policy.

Close
HomeQuizzoneWhatsappShare Flash Reads
 

STOCKS DO NOTHING AHEAD OF THE JOBS REPORT: Here's what you need to know

Mar 4, 2016, 02:30 IST

A man rides his bike up Beacon Street during a blizzard in Boston, Massachusetts.Reuters/Dominick Reuter

Stocks closed the day little-changed for the second-straight session ahead of Friday's big jobs report, the final piece of major economic data in what has been a hectic week for the US economy.

Advertisement

First, the scoreboard:

  • Dow: 16,943.9, +44.6, (+0.3%)
  • S&P 500: 1,993.4, +7, (+0.4%)
  • Nasdaq: 4,707.4, +4, (+0.1%)
  • WTI crude oil: $34.70 (+0.1%)

Economy

The services sector - which accounts for about 85% of GDP - gave us some bad news on Thursday morning.

Markit's reading on services activity slipped to 49.7, indicating contraction in the sector and missing expectations for a reading of 50.0, the breakeven point for contraction/expansion in the reading.

In the release, Markit's Chris Williamson said, "Business activity stagnated in February as malaise spread from the manufacturing sector to services. The Markit PMIs are signaling a stagnation of the economy in February, suggesting growth has deteriorated further since late last year."

Advertisement

So that's not great, especially considering the whole bullish narrative on the US economy has been predicated on strength in the services sector not getting dragged down by manufacturing declines and in fact picking up the slack and then some.

The Institute for Supply Management also put out its February reading on non-manufacturing activity in the US, with this measure rising slightly to 53.4 and respondents to this survey expressed positivity about overall business conditions in the US.

So, that isn't great but less bad that Markit's reading.

Elsewhere in economic data the latest weekly report on initial jobless claims showed claims rose slightly to 278,000 last week - up from 272,000 and missing expectations for a total of 270,000.

Claims haven't totaled more than 300,000 for any week in a year, which Jefferies' Thomas Simons thinks shows a labor market that is continuing to move towards full employment. Simons added in a note Thursday that, "The claims data also suggests that nothing fundamental has changed in the labor market, despite the negative tone to global markets and economies at the start of the year."

Advertisement

Jobs Report

Speaking of the labor market, the big February jobs report is due out tomorrow morning.

Via Bloomberg, here's a quick look at what Wall Street expects:

  • Nonfarm payrolls: +195,000
  • Unemployment rate: 4.9%
  • Average hourly earnings month-on-month: +0.2%
  • Average hourly earnings year-on-year: +2.5%
  • Average weekly hours worked: 34.6

In January, nonfarm payrolls grew by 158,000, less than expected as the unemployment rate fell and a number of economists noted that as we get closer to a labor market that is at "full employment" the absolute total of payroll gains each much must necessarily slow.

This suggests a downside risk to Friday's consensus payroll growth forecast, with Neil Dutta at Renaissance Macro writing on Thursday that he'd take the "under" on this number in the wake of the employment readings out of Thursday's ISM reading.

The most closely-watched part of the employment numbers out over the last year or so has been wage growth, which grew 2.5% over last year in January.

Advertisement

Expectations are for wages to continue growing apace, and corporate news out Thursday that Costco will raise wages adds to the case that while data may ebb and flow, there is no doubt wage growth is very much coming to America.

Wage growth, we'd add, is basically what's required for inflation to begin perking up as you're not going to get inflation in the economy until you have too much money trying to buy too few goods. And if you don't have more money in the pockets of consumers (read: workers) then you're not going to get upwards price pressure.

If you do? Well, there's this.

Bill Gross

Bill Gross' latest investment outlook was released on Thursday.

This time, he contemplates the end of the world. Or the end of capitalism. Not like they're the same thing, per se, but it's not clear that given the short lifespans we enjoy relative to the amount of time the solar system is expected to be in existence, these are definitely not not the same thing.

Advertisement

Gross (emphasis mine):

Our Sun - a rather tiny star in the galaxial scheme of things - seems inexhaustible. But 5 billion years from now, it will swallow, instead of nurture the Earth as it burns itself out - first contracting, then expanding like a flaming candle turned firecracker. Not to worry though. We won't be around. It's not that we are beyond worrying; it's that our lives are much shorter and we needn't think much about it ...Capitalistic initiative married to an ever expanding supply of available credit has facilitated economic prosperity much like the Sun has been the supply center for energy/ food and life's sustenance. But now with quantitative easing and negative interest rates, the concept of nurturing credit seems to have morphed into something destructive as opposed to growth enhancing. Our global, credit based economic system appears to be in the process of devolving from a production oriented model to one which recycles finance for the benefit of financiers. Making money on money seems to be the system's flickering objective. Our global financed-based economy is becoming increasingly dormant, not because people don't want to work or technology isn't producing better things, but because finance itself is burning out like our future Sun.

The answer for investors is to borrow money and buy short duration paper.

The Law

Here's a fun one from UBS' Paul Donovan, via Business Insider's Elena Holodny:

The importance of rule of law increases in the fourth industrial revolution because the economy is likely to become more virtual, and trade is likely to become more about trade in intellectual property rather than trade in physical product. In this situation protection of intellectual property becomes increasingly important, as this is where the value is likely to lie in the supply chain. Being able to rely on the rule of law to defend intellectual property is likely to encourage innovation, because the innovator has some certainty about being rewarded for their efforts. There is nothing new in this, save that the value of the idea may increase relative to the value of the physical product.

Advertisement

So, the fourth industrial revolution is usually about robots and stuff. You know, they are going to take our jobs, our money, our prosperity, etc. (But not at Mercedes, where humans have replaced robots because really nice cars need the kind of customization a robot can't do. Yet. Maybe.)

Robots are the enemy, then, even though they are made by humans. So, we're the enemy? Either way.

But so this view, then, from Donovan that an economy increasingly built on intellectual property will require more legal firepower is at least one way to say that the services sector going to be of ever-more importance.

Now, this view of increased legal action isn't exactly new as one theory of economic growth would argue that part of the first Industrial Revolution's success can be attributed to the fact that intellectual property rights were finally taken seriously.

The idea is that if the law backs up your invention - or, your right to make money from your invention - then other people will be incentivized to invent other things, too.

Advertisement

Additionally

Albert Edwards thinks the "Brexit" and Donald Trump's rise are part of the same thing: the decline of the white middle class.

Stephen Curry is a big deal for Under Armour. Really big.

Bank of America is piling into the already "stretched" auto loan market.

Mark Lasry says he was "absolutely" a bit early in looking to buy distressed energy debt last year.

Mitt Romney on Donald Trump.

Advertisement

Donald Trump on Mitt Romney.

NOW WATCH: A woman who's gone on 150 Tinder dates reveals the worst mistakes men make

Please enable Javascript to watch this video
You are subscribed to notifications!
Looks like you've blocked notifications!
Next Article