Farrell: A Surprising Listless Market

After a day in the market that felt more like a punch to the solar plexus on Tuesday the market was surprisingly listless on Wednesday. There is usually some fireworks after a 90% down day, but not this time. There was even some news to chew on.

July factory orders were up 1.3% and while that is an improvement over last month it fell short of expectations. Such things happen and one month's number should not be over analyzed. But within the report was yet another statement that inventories fell .7%. The general tone of the economic releases the past few weeks has been positive and it has been accomplished without inventories being rebuilt.

I think most of us acknowledge that inventories forevermore will be lean and mean, but at some point they will have to be replenished. It's nice to see economic improvement without an inventory assist. Knowing that will come bolsters the prospects for a better Q3 and Q4 GDP.

Auto sales were announced yesterday and after sifting through the numbers Mike Ward of Soleil/Ward Transportation figures the Seasonally Adjusted Annual Rate of sales (SAAR) was 14.1 million for the month. Looking at his crystal bowl Mike guesses that by the end of the year 10.8 million cars will be sold and that would compare to 13.2 million last year. But it also is quite a pick up from the 8 million or so annual rate we saw during the depths of this downturn.

Nonfarm productivity is not a normal dinner time conversation piece, but it rose 6.6% for the second quarter. Correspondingly, unit labor costs fell -5.9%. That, by the way, compares with a decline of -1.2% for the same time frame last year. Compensation per hour rose only +.3% annually for the quarter and is up a scant +.7% compared to last year.

It's hard to imagine a near term inflation threat with no wage pressure. Production was actually off for the quarter, but hours worked fell more, thus the increase in productivity. As hard as it is on the workers whose hours have been cut, this is a normal enough process that paves the way for increased hiring. An increase in productivity paves the way to better corporate profits which eventually leads to job creation. It might be a normal process, but it's a tough process.

The minutes of the last Federal Reserve meeting were released Wednesday afternoon. The Fed says the recovery will be "modest", there is "substantial resource slack", inflation will remain "subdued", and the weak labor market is "of particular concern." No news there, but it does reinforce the idea that there are no interest rate moves being contemplated anytime soon.

News for Thursday includes initial unemployment claims and non manufacturing ISM. Manufacturing ISM gave us a nice surprise earlier in the week. A double would be wonderful especially since non manufacturing - service - is where more of the jobs are.

  • Jobless Claims Drop, But Employment Picture Still Murky