Economic Week in Review - Oct. 8, 2007

Employment rebounds
The week's key report was released on Friday, with new Labor Department data on the September employment situation indicating an improved payroll picture, as was expected. Coupled with Thursday's unemployment report, the two releases painted a benign employment situation. In other news, activity in the manufacturing and services sectors slowed, and factory orders declined; consumer credit remained healthy. For the week, the S&P 500 Index rose 2.0% to 1,557 (and has earned a year-to-date total return of 11.4%). The yield of the 10-year U.S. Treasury note rose 7 basis points to 4.64%.

Manufacturing slowed
In September, manufacturing continued to expand—though at a slower rate—as the Institute for Supply Management (ISM) Index of manufacturing activity dropped to 52.0 from 52.9 the previous month. This marked the third consecutive month of declines for the index, which now stands at its lowest level since March. Weak numbers on core capital goods orders and shipments indicated weaker output, as new orders and production grew more slowly. While the report suggested a slowing in manufacturing, the sector is holding up despite ills elsewhere in the economy, especially in housing.

Nonmanufacturing activity eased
The ISM Non-Manufacturing Index also showed a slight decrease for September, dropping to 54.8 from the prior month's 55.8. The report showed that employment activity in the nonmanufacturing sectors increased during the month, as did prices, which saw a big rise. The report came in above consensus expectations and suggested that, overall, the outlook for the services sector remains sunny, though activity may be muted for the rest of the year.

Factory orders fell
In August, factory orders dropped a larger-than-expected 3.3%, wiping out most of July's 3.4% increase. Durable-goods orders sank 4.9%, while nondurable-goods orders posted a 1.6% decline, the largest since January. A decline in oil and coal shipments, driven by August's sharp drop in oil production, accounted for most of the weakness in durable goods.

Payroll picture improved
Two reports from the Labor Department painted an improved employment picture, relieving fears of an economic downturn within the financial markets. Thursday's release showed initial jobless claims for the week ended September 29 increasing to 317,000 from an upwardly revised 301,000 the previous week, bringing claims back in line with expectations. Aside from the occasional spike, during the year jobless claims have remained essentially flat.

Friday's employment situation report showed that employment growth rebounded in September, with a net job gain of 110,000. In addition, August's report of 4,000 jobs lost underwent a major revision, showing an ultimate gain of 89,000. Public-sector employment, which had dragged the preliminary numbers down, actually rose in both August and September. Gains also continued in September for service industries, suggesting that spillover from the housing downturn remains largely contained, and private-sector employment as a whole increased. Overall, the unemployment rate rose very modestly in September to 4.7%, from 4.6% in August.

Consumer credit increased
In August, consumer credit increased $12.2 billion, or an annualized 5.9%, to $2.5 trillion. A report released by the Federal Reserve showed that the latest hike was driven by an upswing in revolving credit, which rose 8.4% in August on the heels of July's 7.7% gain. Rebounding auto sales during August also helped to increase demand for nonrevolving credit, which was up 4.8%.

The economic week ahead
On Tuesday of next week, the Federal Open Market Committee will release the minutes from its September 18 meeting, when it slashed both the federal funds rate and the discount rate. A report on international trade will appear on Thursday, and Friday's releases will cover the Producer Price Index, retail sales, and business inventories.

by: Cheryl Anderson
949-212-2903
http://www.stewartoc.com/