Looking For Direction? Do Some Digging!

As we’ve been saying for the past couple of months, this market remains range bound and news-driven. And if you want to know which way this thing will go over the next few days, you would be well suited to invest in a crystal ball as most indicators haven’t been helpful in determining which way the news will flow.

However, this too shall pass. At some point in the future (hopefully, the not-too distant future) the trading range that has kept both teams pulling their hair out, will end. And one team will claim a major victory. The question, of course, is which team will come out on top?

If you are looking for the answer to this unknowable question, please stop reading now because our crystal ball is in the shop for repairs – AGAIN! However, there is one thing you can do to try and get an edge on figuring out which team will prevail; do some research. So, in addition to all the major economic reports that are released, we like to pore over the less publicized data.

Tuesday brought about some data that tends to stay off the radar for the most part. The data did give an interesting insight into the state of US employment and consumer sentiment.

The Conference Board’s Employment Trust Index (aka ETI) suggests that employment growth may be slow in the months to come, but is NOT expected to experience an “outright decline”. The ETI fell 0.7% to 96.7 in August, from 97.4 in July. Seven of the eight components that make up the index posted negative numbers, the most since March 2009. This was also only the second time the ETI has declined in the past 15 months, though the decline was the largest since April 2009. But, on a year to year basis, the ETI is still +9.4%, and has been positive for eight months in a row.

Next up, Manpower (MAN) recently published a report detailing that hiring expectations for Q4 2010 fell one point to +5, which suggests that the hiring rate will remain relatively stable moving forward. More importantly, the employment outlook for eleven out of the thirteen industry sectors were positive (the two sectors that came in with a negative number were construction and government). Employment outlook was also mixed by region, with outlook dipping in the Northeast and West, but holding steady in the Midwest and South.

In another survey, the SHRM (Society for Human Resource Management) Leading Indicators of National Employment (or LINE) showed that private industry job growth will be modest in September for both manufacturing and services. The total number of job vacancies were steady in manufacturing in August, but grew more slowly in services. According to the report, 5.4% of manufacturing respondents had increased new hire compensation, which is the most since September 2008. Despite the positive data, the total amount of capacity in the labor market continues to suggest an ease in wage and benefits pressures for both manufacturing and services (a good thing from an inflation perspective).

While these reports sound pretty good to us, another report, this one relating to the consumer, did not. The RBC Consumer Outlook Index fell 18 points to 45.9 in September. This plunge brings the index to its lowest level since February. Consumers’ lack of confidence can be attributed to the usual suspects; a murky economic outlook moving forward and personal job security. And unfortunately, the share of people who expect that the economy will get worse in the next three months spiked to 45% while roughly 1/3 of respondents said they are worried about keeping their jobs.

So what do we make of all this data?

Unemployment is still a big problem, and employment growth is losing steam. Consumers are also weary of the slowdown in the pace of the recovery, and are concerned for their own job security. With mid-term elections on the horizon, all eyes are on the President and other Congressional candidates to come up with some answers.

However, from a stock market standpoint, it is important to understand that much of the above data is in line or actually better than the current consensus. So, while we will continue to monitor each piece of information that comes in, it does not appear that the sky is falling.

 

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