Does a U.S. Hiring, Manufacturing Slowdown Point to a Double-Dip?

CNBC Producer Catherine Holahan /
Wednesday, 1 Jun 2011 | 3:22 PM ET

U.S. manufacturing is expanding at the slowest pace since the recession ended. Consumer sentiment is at a six month low. And ADP nonfarm payrolls were so much weakerthan expected this morning that major financial institutions such as Goldman Sachs and Deutsche Bank slashed their monthly employment forecasts.

The market sold-off on the barrage of bad news Wednesday.

But, is the nearly 2% drop in the S&P 500 too steep a discount for companies that just recently posted record breaking profits? Could the data be so bad, that it's actually good?

That was a question for Fast Money traders today who had to decide whether a major correction is looming due to slowing global growth or if the sell-off was overdone.

Joseph LaVorgna, Chief U.S. Economist, is betting a market snapback is a real possibility. Despite taking down his own non-farm payroll gain estimate for May today to 160,000 from 225,000, LaVorgna thinks that U.S. data could improve in the back half of the year.

“The data we have had, on balance, over the past three months has been very disappointing,” said LaVorgna in a telephone interview. “But data will not surprise to the downside indefinitely.”

LaVorgna believes that recent economic weakness was partially the fault of higher energy and commodity prices, which hampered consumer spending and dampened corporate margins in recent months – making companies reluctant to add labor costs.

Those strains should ease, said LaVorgna, now that crude and commodity prices have weakened sharply from multi-year highs hit in April.

Crude prices are down about 12% in the past month. Most grain futures have softened more than 4% during the past month.

“Commodity prices have come off a bit… and Japan supply disruptions seem to be abating,” said LaVorgna. “This [weak data] is not a fundamental change to the economy, it is temporary.”

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