Weekly Drive: September 2nd to September 5th, 2014

The first week after month end is always full of data. I have a lot to cover.

THE KEY ECONOMIC LANDMARKS WE PASSED

1. ISM Manufacturing: 59 vs. 57 est.

Another great report from the manufacturing industry. The underlying data sets remain well above the 50 mark which signals continued growth and several saw increases. Notably, new orders boomed to 66.7 and production is now at 64.5. The economic beast is slowly awakening. Additionally, on an inflation note, the prices paid index dropped slightly to 58. A cooling in the index gives the Fed a bit more time, but it still remains relatively high so the timeline could be getting squeezed.

2. Nonfarm Payrolls: 142K vs. 230K est.

And the streak is broken…We are now back under the 200K mark in payrolls. Many had expected a strong showing for manufacturing, however, employment was unchanged. Gains were seen in construction, health care, and services (17K of which was temp). As always, I expect to see revisions for the August number in subsequent releases. If the revisions bump the number up into the 170-200K range, we can consider it to be a minor blip in an overall positive trend. The participation rate fell again to 62.8% as more workers left the work force. Unemployment now stands at 6.1%. There was evidence of wage growth with hourly earnings rising 2.1% YoY.

3. Unit Labor Costs: -0.1% vs. 0.5% est.

Productivity was up 2.3% which was below initial estimates. Growth in manufacturing was much higher at 3.3% while labor costs fell during the quarter. The threat of runaway inflation is just not there yet. I would like to see a pickup in productivity if we expect the economy to continue posting 3-4% growth.

4. ISM Non-Manufacturing: 59.6 vs. 57.7 est.

Not one to be outdone by manufacturing, the services industry also put in a stellar report. Employment moved higher to 57.1, business activity shot up to 65, and new orders fell a bit to 63.8. Services have remained above 50 for nearly six years and do not look to be stopping on the march forward any time soon. As was also seen in the other ISM report, prices paid fell in August but still remain higher. In summary, the future looks bright.

5. Other Items:

The trade deficit narrowed, vehicle sales were much better than anticipated, and factory orders were mostly in line with expectations. I could get more in depth but suffice to say these numbers are further evidence of a economy making strides.

LAST WEEK’S MARKET IN THE REAR-VIEW: “Short Week, Holding Steady”

The S&P 500 is creating a nice little trading range for itself (1995 to 2005). The two main non-domestic influences on stock prices last week were Ukraine and the ECB. Flare ups in Ukraine initially brought out some sellers, but a late week cease fire agreement soothed concerns. The ECB enacted a bond buying program similar to QE in the hopes of boosting activity in the eurozone. Stateside, positive economic news and a disappointing payroll number kept us steady. Traders were adjusting to the end of summer, a short week, and the start of the year end grind.

LOOKING THROUGH THE WINDSHIELD

Economic

A little calmer on the economic front this week with focus likely on retail sales after a flat month in July. Traders’ antennae are slightly more alert after the NFP number, but there should not be much worry. A few inventory numbers may give a tad more information for GDP. Although with a 4.2% Q2 print, even a downside revision of 0.5% would likely elicit a shoulder shrug at best.

Market

Can we push higher? Volatility is non-existent and volume should be returning after the summer doldrums. Allow me to talk out of both sides of my mouth for one second. September could be ho-hum or it could get interesting. I personally think there is enough to support higher asset prices, but a trade below 2000 on the S&P every now and then would not be the worst thing to happen.

SCHEDULE

Calendar - 98-912