Obama Love Overcomes Unemployment Report

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(Article interests: SDTH, GEOY, BABY, BTH, AZZ, RIMM, DIA, SPY, QQQQ, NYX, DOG, SDS, QLD, XLF, IWM, TWM, IWD, SDK).




The Employment Situation Report was about as bad as expected, so not an obstacle for stocks today. Thus, the market was free to rise while still euphoric over G-20 survival and Obama's good PR work overseas. The day also offered House and Senate passage of Obama's budget without any support from the Republicans. The levels of planned spending within the budget is concerning, but the feeling is that it's needed now, and Republicans have lost all credibility with regard to budgeting so it's free to fly.

Economic Data

Employment Situation Report

The Labor Department's assessment of the employment situation for March was about as bad as expected. In our "Week Ahead" copy, we said a difference of 50K nonfarm payrolls here or there would likely have an impact to broader market direction one way or another. We caught a break this morning though. The loss in Nonfarm Payrolls, at 663K, was just 13K off the consensus estimate of -650K. The March figure also compared unfavorably to the February result of -651K.

The unemployment rate reached a point not seen in 25 years as it hit 8.5% in March. After soaring to 8.1% in February, from 7.6% in January (half-point move), rounding played in favor of the lighter 0.4% difference this time around, though the flow of joblessness intensified some. We seem sure to reach 9% next month, and investors will likely reconsider the nascent bull (bear market) rally because of the side effects of the jobless flow.

Obama's Budget Moves Forward

The Senate and House each passed versions of Obama's budget last night, and will now work out the differences to come to accord. With the Republicans left out (not one vote recorded for either), Democrats will debate amongst themselves. The Senate version is slightly less expensive, and also aims to cut the deficit by a greater degree over the long haul. Neither version pleased the GOP, but the GOP extreme version of a budget plan didn't even garner full party support. It included extreme measures like blank spending freezes that are just illogical and play a political card. America is tired of these old political games, and wise to them. The GOP would be better served working honestly toward America's best interests, versus placing its bets on Obama's falling out of favor, and setting itself up to provide the alternative. Obama is going to have his way here, and so it'll be his election to win or lose in four years based on performance. I wouldn't have it any other way if I was him... Still, that disregards the many wildcards that can do an administration in, like war, terrorism and scandal. For those, we hope prayer and steadfast work go a long way toward eliminating.

ISM Nonmanufacturing Report

The Institute for Supply Management produced its service sector measure this morning. ISM's Nonmanufacturing Report showed further contraction in March. The broad Non-Manufacturing Index measured 40.8, compared to 41.6 the month before. This deterioration is important, but any reading below 50 is indicative of economic contraction. The March measure was also short of consensus expectations for a read of 42.0.

The Employment Index, a component of the composite measure, was the most sour as might be expected. At 32.3, it was five percentage points off the prior month level. The New Orders Index also declined 1.9%, to 38.8 in March. Overall, March marked the sixth consecutive month of contraction "at a slightly faster rate."

The only positive news came from the Business Activity Index, which rose 3.9 percentage points. Prices were also on the decline at a faster rate in March, as should be expected. Only one industry posted better results last month, Real Estate, Rental & Leasing, but we expect this is a seasonal beneficiary. Folks who still have jobs may be planning more local vacations for this summer to save money, and that would encompass renting a place in the mountains or by the sea. This kind of activity gets busy this time of the year. Also, foreclosures are leading many ex-home owners back into the rental pool. This is a strengthening factor for rental markets outside the overpriced metropolitan areas, and a stabilizing factor within them.

Overseas News

Chinese Manufacturing Recovers

While G-2o euphoria spread by a dosage of Obama love helped stocks yesterday and today, some tangible good news came out of the East. Of course, we would question any positive data right now, given the overwhelming evidence to the contrary, but we are especially suspicious of government statistics when they originate from a communist state. Not that we capitalists are beyond fudging to keep the party in office, which, oh by the way, may have been evident in the dramatic drop off of the economy (based on data flow) once Barack separated himself from McCain. The tone out of the Bush Administration also switched from cheerleaderish to drama queenish around that same time.

A bright analyst at Merrill Lynch (NYSE: BAC) cleared the curious data up, as he exposed the flawed math and limited statistical data employed to forecast seasonal adjustment by the reporting Chinese federal agency. In any event, China said its Manufacturing PMI rose to 52.4 in March, versus 49.0 in February. In other words, Chinese manufacturing is expanding after five months of contraction. The problem is, the government's measure focuses on large government aided organizations, who are the direct beneficiaries of significant and real stimulus. Also, the figures for March have varied on the high side in years past, perhaps due to flawed mathematical adjustment. A competing estimate of Chinese manufacturing, that which is produced by CLSA Asia Pacific Markets, prepared outside the communist sphere of power, showed contraction again in March. Which do you believe?

EPS Schedule

A light earnings schedule closes out the week before earnings season begins anew. Today's reporters (and last night) include AZZ, Inc. (NYSE: AZZ), Blyth (NYSE: BTH), GeoEye (Nasdaq: GEOY), Nadus Medical (Nasdaq: BABY), Research in Motion (Nasdaq: RIMM), ShengdaTech (Nasdaq: SDTH) and a few more smaller firms.


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