Layoffs Up 20% in November

Money minders and economy watchers got bad news Thursday when Challenger Gray & Christmas reported Job Cuts climbed by 20% in November. It’s a bad sign for an economy on the brink of a fiscal cliff freefall. Furthermore, the situation seems to be deteriorating in December, with a high profile mass purge plan just admitted by Citigroup (NYSE: C).

Layoffs

Regarding November, immediate blame wants to find Hurricane Sandy, but the responsibility falls upon the bankruptcy of Hostess Brands and its mass impact to the labor count, with 18,500 jobs lost on the bankruptcy alone. If not for the Hostess failure, announced layoffs would have fallen in November from October’s tally of 47,724. Instead, we saw the layoff count rise to 57,081.

Still, big layoffs are commonplace, however unpredictable. After all, the month marked the third consecutive increase. That reflects poorly on the fourth quarter, so that the year-to-year improvement marked thus far in 2012 might narrow before year’s end. Through November, year-to-date, total layoffs have measured 13% less than in 2011, at 490,806. The pressure is not easing either with Citigroup’s (C) just announced reduction of 11,000 jobs; those will impact December’s data.

Big impact layoffs have dictated doom in 2012, with Hewlett-Packard’s (NYSE: HPQ) high profile headcount cut of 27,000 workers in May. In October, Ford (NYSE: F) workforce reductions made up almost a quarter of the total layoffs for the month. Citigroup’s cuts may be followed by more massacres on Wall Street in December. According to Challenger's data, New York is already third in job cuts this year, behind California and Texas. A New York Post article published in late September which referred to the comments of a banking analyst at Nomura, indicated that banks would need to cut workforce to safe-keep return to shareholders.

Some say the workforces of Wall Street will be 10% to 15% slimmer in 2013. European banks have been more active for obvious reasons, with Deutsche Bank (NYSE: DB) announcing a cut of 1900 people in July. UBS (NYSE: UBS), Credit Suisse (NYSE: CS) and Goldman Sachs (NYSE: GS) announced cuts around the turn of last year. Bank of America (NYSE: BAC) has continuously chipped away at the 30,000 jobs it said it would shed last year in September. Morgan Stanley (NYSE: MS) is likewise working on previously declared firings. J.P. Morgan Chase (NYSE: JPM) has actually added jobs over the last three years. Still, with margins tight due to record low interest rates, and with global economies at issue and markets complicated as a result, the banks have increasingly turned to expense reduction to save return to shareholders. Still, layoffs can go too deep and significantly impair revenue generation, so a fine dividing line must be carefully approached on Wall Street. Financials led layoffs in years past, but this year’s biggest job cutters by industry have come from computers (on HP), transportation (Ford), food (Hostess), Healthcare/Products & Retail.

The end of the year can be hotter for the hook, as companies look to meet their new (and likely slimmer) budgets. Likewise, a tight and limited bonus pool can influence thinking about inefficient producers. A quick cut can mean a fatter bonus for survivors, ignoring the costs of litigation etc. Some companies also benefit from a write-off around the close of the year, to help fog the red reality they might otherwise have to show shareholders. Finally, I believe the fiscal cliff issue has frozen the hands of small businessmen, and that the cliff and also the re-election of the health conscious President has large and small firms contemplating rising healthcare costs and workforce counts. Whatever the case, I think we can all agree the current period is not one inspiring of new hiring. As I continue to cover economic reports and the economy, readers may want to follow the column.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Durable Goods Orders Lays a Goose-Egg

Durable Goods Orders were reported unchanged in October. So is it a bad economic signal or just a monthly anomaly? You’ll find the answer in the paragraphs that follow.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

Durable Goods Orders

Durable Goods Orders were unchanged in October, and September’s rapid rise was revised lower to +9.2%, from the initially reported +9.9%. No change month-to-month after such a huge increase the month before shouldn’t be something we complain about. It should in fact be expected, but there were several things that bothered me about the report and should also concern the rest of the investment community.

We always look beyond the headline figure in our study of the durable goods data, because of the high ticket costs of transportation goods. These high ticket prices skew the data. That is evident in the latest data, with durable goods orders less transportation up 1.5% month-to-month (versus the much bigger change in the headline figure), after marking a 1.7% (revised) increase in September. Considering the information less transportation, the report would seem much less concerning. It’s also notable that each discussed data point exceeded economists’ expectations, with the ex-transportation forecast average set at negative 0.4%.

However, all is not well. I say this because of the year-to-year change in durable goods orders less transportation. This data line was down 1.8% (revised) in September and lower by 2.3% in October. With the trend continuing through the two month period, we see that there is an issue year-to-year, and it likely marks important economic decline. I think it’s safe to say Europe has weighed against American multi-nationals more this year than last year, with Germany and France both contaminated now. It has also been evidenced by the reported numbers and warnings by industrial players including the likes of Caterpillar (NYSE: CAT). Caterpillar’s outlook and EPS estimates have come down substantially, and other stalwart industrials like General Electric (NYSE: GE) have seen analysts adjust EPS estimates downward as well.

Looking more closely at the data, we see that when excluding the defense industry, new orders only rose by 0.1%. Knowing that the fiscal cliff issue and sequestration pressures defense spending, this data proves meaningful as a predictor. It’s because defense spending is likely to decrease further, barring new and major war, and so some of the supports of durable goods orders and American industry could be removed. The earnings outlooks of Honeywell (NYSE: HON), General Dynamics (NYSE: GD) and others have seen appropriate adjustment as a result. More of the American manufacturing workforce may be displaced as a these companies act to protect the investment interests of their shareholder owners. It is concerning without a replacement channel for workers, and alternative energy is not filling production lines in the U.S. just yet, though domestic energy production is offering some support.

Nondefense new orders for capital goods, an area seen as an integral economic indicator and a measure of business capital investment, rose by 0.8% in October. Also, nondefense capital goods orders excluding for civilian aircraft from the likes of Boeing (NYSE: BA), which has done relatively well over the last few years, rose by a solid 1.7%.

Looking at industry specifics, orders for computers and electronic products increased by 0.9%, as Apple’s (Nasdaq: AAPL) reinvention of computing has driven demand for tablets and new types of computing products, supporting economic activity, but is creating more jobs overseas than at home in my view. Still, the quality of life at home has improved in some respect, and other ancillary job opportunities have resulted beyond the manufacturing of these goods; for instance, in the design and marketing of applications of these products. New order activity in this segment appears to be seasonal, given the prior two months of decline and on recent new product introductions from Apple and competitors ahead of the holiday shopping season. New orders for appliances and electronic equipment were up 4.1% after a similar decline the month before, certainly supported by reviving real estate and on demand for the appliances that fill homes. Demand for flat screen televisions is also robust, as homeowners replace old technology as product prices come down.

The auto industry saw a lull in October, with new orders down 1.6% after a 1.9% decline the month before. Still, Ford (NYSE: F) and General Motors (NYSE: GM) will continue to benefit from burgeoning demand for autos in Asia, especially as Japanese tensions are exacerbated with China over territorial issues.

In totality, I’m concerned about the latest durable goods orders data, especially when considering what the effects of likely higher taxes for some in the United States will have on demand. Europe’s ongoing decline and its lightening demand for American exports remain troubling as well. And so the answer to my rhetorical question is, yes, there is a negative signal in the latest Durable Goods Orders Report. Due to our regular coverage of economic issues, readers may follow this column if interested in similar research and analysis.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Retail Sales Lifted by iPhone 5

Retail Sales gained by 1.1% in September, enthusing stocks. The SPDR S&P 500 (NYSE: SPY), SPDR Dow Jones Industrial Average (NYSE: DIA) and the PowerShares QQQ (Nasdaq: QQQ) were each up robustly Monday on the news. The growth in sales offered reassurance about an economy that was recently drawing questions about its health. However, a special factor may have offered a temporary lift for the month and should play a smaller role moving forward - the iPhone 5 introduction. Still, Apple's major product launches are as good as economic stimulus.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

The government said Retail Sales rose 1.1% in September, and August was revised higher by three-tenths of a point to +1.2%. At first brush, one would expect the gain came from the significant auto segment or on higher gasoline prices. However, when excluding autos, sales were also up by 1.1%, and when excluding autos and gasoline, sales increased by 0.9%, exceeding economists’ consensus expectations for growth of 0.5%. That’s impressive.

Closer inspection of the data shows that motor vehicle sales increased by a robust 1.3% rate, boding well for automakers Ford (NYSE: F), General Motors (NYSE: GM), Toyota (NYSE: TM), Daimler AG ADRs (OTC: DDAIY.PK), Honda Motors (NYSE: HMC) and Nissan (OTC: NSANY.PK) – some more than others. Auto shares were higher on the day, with Ford and GM lagging their foreign competitors’ gains. Auto sales were already reported for September, and so the gains in these stocks are also attributable to the general message conveyed by the overall sales growth.

Gasoline stations did see above average growth of 2.5% on the month, given the rise of gasoline prices, especially in California. The shares of Pantry Inc. (Nasdaq: PTRY), an important operator of gas station and mini-market stores, are higher by 1.5% on the news. The shares of major oils Exxon Mobil (NYSE: XOM) and Chevron (NYSE: CVX) are up a half point each on the news, as well as on news that Iran is contemplating causing a large oil spill in the Strait of Hormuz.

The special driver last month was found in sales at Electronics and Appliance Stores, which increased 4.5% over August. The gain was the largest of any segment, and was directly attributable to Apple’s (Nasdaq: AAPL) iPhone 5 introduction on the twelfth of the month. Apple sold five million of its new iPhone just through the first weekend of its availability. This certainly drove traffic into stores other than Apple’s, both at street level and on the web. Best Buy (NYSE: BBY), for instance, should have seen higher foot traffic and likely generated sales of products other than the iPhone as well as on discounted legacy Apple phones and on competitively priced competitor gear.

Sales of non-store retailers, which include catalog but also sellers on the web, increased by 1.8% in September. Though some of these retailers were not selling the iPhone 5, they still benefited from traffic to their sites and on the re-sales of Apple products and the sales of older Apple and competitive products through the month. Thus, the Amazon.com’s (Nasdaq: AMZN) of the world, along with eBay (Nasdaq: EBAY) and others benefited indirectly.

Food & beverage store sales increased 1.2%, likely on price increases in agriculturally based goods. Sellers like Kroger (NYSE: KR), SuperValu (NYSE: SVU) and Wal-Mart (NYSE: WMT) also make a good deal of money from the use of food stamps.

Building material & garden equipment & supplies dealers saw a 1.1% sales increase through September, as the construction industry benefits from the lack of supply of new homes and the building of rental properties to meet the demand of our new “renter nation”.

Sporting goods, hobby, book and music stores saw sales increase 0.8%, likely on seasonal demand related to the start of school. Yet, clothing & clothing accessories stores only saw a 0.6% increase in sales, while general merchandise stores like Wal-Mart (NYSE: WMT), Target (NYSE: TGT) and Sears (Nasdaq: SHLD) only saw a 0.3% increase. Department stores like J.C. Penney (NYSE: JCP) marked a sales decline of 0.2%, as they continue to lose share to discounters and warehouse club stores like Dollar Tree (Nasdaq: DLTR) and Costco (Nasdaq: COST).

Another measure of economic health tied to discretionary spending offered a different message than the electronics stores. Food services & drinking places only marked sales growth of 0.4% in September, offering an ominous perspective on the perhaps short-lived nature of iPhone sales. While the celebration today is understandable, investors should take into account that temporary short-term iPhone boost.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Jobless Claims Improvement Likely Just Seasonal

Report Update: One unnamed important state failed to report claims for all of its regions this week. Due to the unreported claims from an important state, not noted within the DOL report, today's gains in stocks and employment services firms were on soft or even false footing. They should vanish and reverse accordingly.

Prior to our discovery of the anomaly, and due to the poor reporting of the DOL on this issue - leaving it out of the weekly report release, we initially sought to explain what seemed to us to be surely erroneous data (we were right) as follows.

Weekly Initial Jobless Claims improved impressively last week, but there might be a seasonal reason for what could prove to be an exaggerated improvement. I see two possibilities, an obvious one which is likely only slightly skewing the number, and one theoretical idea that could be playing a larger role. Of course, there’s also the possibility that the flow of jobless claims is legitimately improving, but I find that difficult to believe given the flow of other economic data.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

Jobless Claims

Jobless claims fell by 30,000 in the period ending October 6, declining to 339K. The four-week moving average for jobless claims also fell, by 11,500, to 375,500. It certainly would seem like good enough news if not for the time period covered.

While the Jewish holiday of Yom Kippur was on the 25th and 26th of September (outside of this reporting period) with work forbidden during the period, the Jewish holiday of Sukkot, with work likewise forbidden, ran through the period of reporting last week. This could have affected both the filing of unemployment and the processing of claims, but to what degree?

It is hard to measure the exact extent of impact for the reporting period, because religious holidays are not necessarily strictly followed in America by followers of all faiths today. For example, I know a great many people of my own faith who work on Good Friday. Thus, we cannot be sure of the percentage of Americans for whom the factors of faith and new unemployment mattered last week. Still, we neither can be sure the reporting period was clear of noise. Next week’s data will not be clear of holiday issue either, as it has Columbus Day to incorporate.

Another seasonal factor could have played an important role in the reported improvement. As it is earnings season, companies about to report results below their forecasts or the estimates of analysts may be saving layoff announcements to coincide with their earnings results. When a company misses, it will often take action immediately in order to reassure investors that it is actively working to end the trend. Thus, new jobless claims that might have been announced over the last couple of weeks may perhaps have been postponed for announcement with pending poor earnings reports. The third quarter earnings season is not expected to be robust, and earnings warnings continue to threaten stocks generally.

Looking further into the data, the insured unemployment rate was unchanged at 2.6% for the period ending September 29. The exact count of the insured unemployed improved by 15,000 to 3.27 million Americans. The number of people claiming benefits under all programs for the week ending September 22nd declined by 43,970, though still numbering 5.04 million. It’s important to note that extended benefits were only available in New York.

The highest insured unemployment rates in the week ending September 22 were in Puerto Rico (3.9%), Alaska (3.7), Virgin Islands (3.7), Pennsylvania (3.2), New Jersey (3.1), California (3.1), Connecticut (2.9), Nevada (2.7), and Oregon (2.7).

The largest increases in initial claims for the week ending September 29 were in New York (+2,764), California (+2,069), North Carolina (+1,217), Pennsylvania (+989), and Arkansas (+538), while the largest decreases were in Mississippi (-3,393), Michigan (-2,639), Florida (-1,972), Ohio (-1,723), and Oregon (-1,135).

The shares of employment services companies tend to move on this data and are listed below. All of the companies are higher, and some relatively more than the move in the market represented here by the SPDR S&P 500 ETF (NYSE: SPY). To the extent that the gain is more than the general relationship of each security to the market, as represented by beta, it is likely due to the new claims data.

Company & Ticker	Thursday Change
Robert Half (NYSE: RHI)	+0.1%
Korn Ferry (NYSE: KFY)	+0.6%
Monster Worldwide (NYSE: MWW)	+1.2%
Manpower (NYSE: MAN)	+1.7%
Paychex (Nasdaq: PAYX)	+0.1%
On Assignment (Nasdaq: ASGN)	+2.4%
Kelly Services (Nasdaq: KELYA)	+1.5%
SPDR S&P 500 (NYSE: SPY)	+0.6%

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Healthy Skepticism of ISM Manufacturing Strength

Monday’s reported improvement in the ISM Manufacturing Index confounded the popular wisdom of the day, which sees manufacturing on the downslide. The critically important data point offered a message that seemed to counter many other manufacturing and related data points, including last week’s Durable Goods Orders data. It also countered the negative tone still emanating from the Philadelphia and New York Fed regions, but truth be told, data from Chicago and other Fed regions had hinted at stabilization. Still, I think there may be a fly in the ointment not yet noticed, and that is the impact of higher pricing on the overall PMI and on New Orders. Because the index is created through survey of purchasing managers, who are bottom line oriented, I believe higher prices paid are being passed through to end product and presenting an improved image in the clouded minds of managers.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

It’s also important for investors to remember that this is one month’s data which counters the trend of the prior three months; it also reflects gains over those downtrodden periods (softened base). Finally, the global macroeconomic environment is still slowing in Asia and deteriorating further in Europe. With today’s interdependence of economies, it would be naïve to assume foreign havoc cannot do more damage here at home, where we remain underemployed and where price matters most among consumer decision factors.

My perspective of the current state of the economy is one of issue, and of higher forward concern. Make no mistake about it, the fiscal cliff issue and election uncertainty will put a hold on business activity over the next month or three. Also, war with Iran is highly likely over the next 1 to 6 months, in my view, and should be factored into economic and investment scenarios. I believe it is negligent to completely ignore the issue at this point.

The Manufacturing ISM Report on Business showed its Purchasing Managers Index improved by 1.9 points, enough to take it above 50.0, to a mark of 51.5. The news had the SDPR S&P 500 (NYSE: SPY) up more than half of a percentage point through midday. The SDPR Dow Jones Industrial Average (NYSE: DIA), whose components would seem to be better represented by this data, was up nearly a full point. The Industrial Select Sector SPDR (NYSE: XLI), which is definitely represented by the data, was up to a lesser extent, by 0.6%, which I believe is quite telling. See today’s market report for more on this.

The ISM data showed its New Orders Index, a forward looking measure of interest, moved up by a sharp 5.2 points to 52.3, and into expansionary territory. The Production Index improved as well, rising 2.3 points, though it remained in contraction territory at 49.5. We might say the production index is less reliant on prices, where the orders index can be measured by dollars or units, but is likely thought of in dollar terms by managers. Purchasing managers indicated a renewed propensity to hire, with the Employment Index up 3.1 points to 54.7.

Despite the above listed improvements, there was more than enough reason provided by the report to temper enthusiasm on manufacturing and the economy. Leaving the most important factor for last, we noted Customer Inventories only improved slightly by a half point, and stuck in territory reflecting contraction, at 49.5. Also, Order Backlogs were deeply mired in the mud at 44.0 (+1.5). The Export environment remained difficult as the index improved by 1.5 points to just 48.5. Imports edged up only 0.5 points to a still insufficient 49.5 mark.

Finally, a key factor that could have played an important role in the rise in both new orders and in the overall PMI, may reveal a misleading index. A great many more purchasing managers reported increases in prices paid in September. The Prices Index rose by 4 points to 58.0, which indicates a faster rate of price increase in September than in August. If you survey industrial commodities, you find that some industrial metals declined in price, which reflects poorly for goods demand. Meanwhile, prices for important food components, gasoline, and packaging materials rose, which weigh on manufacturers, increased. Of the 18 manufacturing industries, 10 reported paying increased prices during the month of September in the following order: Food, Beverage & Tobacco Products; Plastics & Rubber Products; Printing & Related Support Activities; Wood Products; Chemical Products; Primary Metals; Furniture & Related Products; Machinery; Fabricated Metal Products; and Miscellaneous Manufacturing.

The indexes are based on survey, and purchasing managers are bottom line driven. They want to meet budgets, and they are of course acutely aware of sales activity in dollar terms. In my view, the increase in prices paid is probably being passed through to some extent, and is directly inflating the new orders and overall PMI data found here. Also, I believe they are indirectly affecting the employment perspective of managers. The other data reported, which was not as dramatically improved, seems to offer a different message.

I suspect the tempered enthusiasm of the XLI offers a check on the gains of the broader indexes today. Investors in this sector will not soon forget the warnings of major players, including Caterpillar’s (NYSE: CAT) of just a week ago. It’s noteworthy that after an early lift, Caterpillar’s shares are lower nearing the close of trading. Though, the shares of most other major industrials are still celebrating the data. This is because capital will not find the sector representative which reported issues. Rather, it will drive in a hopeful manner into the stocks of others, many of which I believe will also eventually report issues.

Company & Ticker	Monday’s Change 2:30 PM
GE (NYSE: GE)	+0.8%
Ford (NYSE: F)	+0.8%
FedEx (NYSE: FDX)	+0.5%
Boeing (NYSE: BA)	+0.8%

It’s my view that this celebration will be short-lived because it is disproportionate to the improvement of September over August and being misled by the price factor. A realistic view of the state of the economy and manufacturing should offer only tempered support to the manufacturing segment. Investors should be skeptical of this data and its staying power given all other information.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.