David Kelly: No signs of a double-dip, but growth still seems unclear

This week should be dominated by economic numbers and, in particular, the September Jobs report due out on Friday

The following is the weekly market commentary of David Kelly, the chief market strategist at JPMorgan Funds, for the week of October 4.

Last week, financial markets wrapped up a very profitable quarter for stocks and other riskier assets. Next week, the focus will turn to the new earnings season. This week, however, should be dominated by economic numbers and, in particular, the September Jobs report due out on Friday.

Before then, however, the data should provide some further guidance on economic momentum entering the third quarter.

August Pending Home Sales, due out on Monday, should see a bounce from very depressed July levels as the hangover effect from the expiration of the home-buyer credit wanes. This, in combination with last Friday’s vehicle sales numbers, should suggest that the more cyclical areas of household spending are beginning to recover from very low levels.

The ISM Non-Manufacturing Survey is newer and generally less informative than its manufacturing counterpart. However, the employment component of this index, which should be relatively flat month-to-month, has proven to be a good leading indicator of overall job growth.

Other indicators of the labor market, such as the Monster Employment Index, the ADP report, and the Challenger Layoff Announcement report will also set the mood and perhaps alter some forecasts for Friday’s employment data. Weekly Jobless Claims, due out on Thursday, will be less relevent for these numbers as these claims were filed after the “survey week” for the monthly employment report. However, they will give a more timely measure of job market momentum. Monthly Chain-Store Sales, also due out on Thursday, will help fill in the picure on September activity.

Finally, on Friday morning, the Labor Department releases the September Jobs Report. A small gain in private payrolls seems most likely, although this should be more than offset by losses in the government sector.

However, for the last 4 months, private sector payroll gains have been in an unusually narrow range of +51,000 to +107,000. In a similar vein, the unemployment rate in the last four months has been in a tight band of 9.5% to 9.7%, as very subdued labor force growth has prevented the increase in the unemployment rate which should have been the result of such meagre job gains. There is no assurance that Friday’s employment report will keep either of these numbers in these ranges. While the economy and markets seem to have overcome the double-dip fears of the last few months, it remains unclear whether growth is set to accelerate or slow and, to the extent that Friday’s report shines some light on this issue, it could elicit a strong response in both the stock and bond markets.

***** ***** *****

Monday, October 4th

Pending Home Sales Forecast Last
Index Level 85.7 79.4

Tuesday, October 5th

ISM Non-Manufacturing Survey Forecast Last
Index Level 54.3 54.4

Thursday, October 7th

Jobless Claims Forecast Last
Initial Claims, 000’s 445 453
Continued Claims, 000’s 4,425 4,457

Friday, October 8th

Employment Forecast Last
Private Payroll Jobs, chg, thousands 32 67
Unemployment rate, % 9.7% 9.6%
Avg Workweek, Prod Wkrs, hours 33.5 33.5
Avg Hrly Earnings, Prod Wkrs, %ch 0.1% 0.2%

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