Market Drivers: Manufacturing, Employment, Economic Health

English: Bacon

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After closing out the first quarter on a strong note, many are wondering if the market is a bit overvalued and ripe for a pullback as we head into Q2. The recent round of employment data has been weak, causing concern that the health of the economic recovery is not as strong as originally thought. Next week earnings season kicks off with Alcoa announcing results after the close of trade on Monday. Here are three things that have been driving the market this week:

March ISM Manufacturing Index

The week started with a disappointing March report from the Institute for Supply Management, with the figure coming in at 51.3 compared to 54.2 in February. While still above the “50” reading that indicates growth in the sector, the figure was a sizable miss from expectations of 54. This shows that while the US manufacturing sector is still expanding, the pace has slowed to the lowest level since December 2012. According to an article in the LA Times by Jim Puzzanghera, “purchasing managers' comments highlighted by ISM indicated that reduced government spending and uncertainty about federal regulations were among the reasons for the March slowdown.” Markets sold off sharply on the news and,  contrary to recent trends, shares were unable to recoup losses before the closing bell.

Bits and Pieces

A flurry of industry specific data and news has sparked pockets of interest in sectors of the market this week, here are the highlights:

  • Healthcare related names garnered strength following the Centers for Medicare and Medicaid Services decision to increase 2014 rates for Medicaid Advantage and prescription drug benefits by 3.3% instead of the previously announced 2.3% cuts.
  • We also saw motor vehicle sales for March reported at 15.3 million, basically in line with the expectations of 15.4 million.
  • Along that line, both Ford Motor and General Motors saw their monthly sales climb by 6% and 6.4% respectively.
  • Separately, the March Non-Manufacturing ISM report was reported at 54.4, below the 55.5, and down from February's reading of 56.0.  While this report indicated continued growth, it represents the slowest monthly rate of growth since July of 2012.

Employment Situation

Some weak employment data this week has put some pressure on the market throughout the week. For starters, the ADP Employment report indicated 158,000 nonfarm private business jobs were added in March, below the expected 197,000. It is worth noting most of the job gains were in the service sector (generally disproportionately lower paying jobs as a whole) this month with the goods sector adding only 7,000. Separately, initial claims for unemployment benefits increased 28,000 to 385,000, the highest level since November. Expectations were calling for a drop to 350,000. Finally, March nonfarm payrolls came in at 88,000, well below the expected 192,000, and nonfarm private payrolls added only 95,000 against the 210,000 consensus. The data is showing that American employers hired at the slowest pace in nine months in March, a sign that Washington's austerity drive could be stealing momentum from the economy. The unemployment rate did manage to tick down to 7.6%, better than the expected unchanged 7.7%. Unfortunately, that is not necessarily a sign of improvement, rather the nearly half a million fewer people were participating in the labor force.

Weekly Bonus : Bacon Flavored Mouthwash?

In an effort to tap into the worlds fascination with the bacon, on April 1, 2013, Scope announced that they will be launching a new flavor of mouthwash – you guessed it, bacon! You will now be able to swish around the great smoky flavor, while fighting cavities at the same time. The bonus is that the taste will come from a perfectly healthy synthetic flavoring, which does not contain any meat products. This makes the product perfectly safe for vegetarians out there craving a bacon fix. Who knows what they will come up with next?         

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