Last week’s trading was overshadowed by several employment reports that proved troubling to Americans. After a positive start to the week, the remainder of the trading sessions showed immense volatility, which included a 3.1% drop in the S&P 500 on Thursday, marking its steepest decline since April 2009.
The most watched employment report, released on Friday, showed that the nation’s unemployment rate declined unexpectedly, falling to a reading of 9.7%, despite the fact that companies cut 20K jobs in January. The surprising drop in the rate was a result of the Labor Dept’s findings that newly employed workers increased by 541K during the month.
Moreover, the number of part-time workers looking for full-time work declined by nearly 1M people during the month, which lowered the underemployment rate from 17.3% to 16.5%. Nevertheless, for those with full-time positions, the average workweek increased to 33.3 hours, from 33.2 hours.
Wednesday’s ADP employment report showed that the private sector cut more than 22K jobs during the month of January, marking the 24th consecutive monthly decline. Although the decline was the smallest amount since January 2008, concerns remain especially after a record 736K jobs were lost last March.
Looking further inside the report, the ADP stated that the service sector gained 38K jobs, while goods-producing industries cut 60K positions, including 25K in the manufacturing sector. Additionally, large businesses reduced their staff by 19K, small businesses cut 12K jobs, and medium-sized businesses surprisingly added 9K positions, the first increase since January 2008.
A third jobs report last week from the job placement firm Challenger Gray & Christmas, announced that corporate layoffs surged 59% in January to more than 71K. The advance marked the first month-to-month increase since July. The data also showed that companies planned to hire more than 31K workers in January, down from the proposed hiring of nearly 36K workers in December.
The Labor Department remarked late last week that the number of new claims for unemployment benefits increased by 8K filings to a seasonally adjusted 480K, as the nation continues to struggle with layoffs and scarce employment opportunities. Economists had expected a drop in claims to 460K. Meanwhile, the number of people continuing to claim benefits remained unchanged at 4.6M.
On a positive note, orders for durable goods to U.S. factories surged by 1% in December, as the manufacturing sector remains supportive of the economic recovery process. With the 1% gain, it marked the eighth advance in the past nine months, and was double that of the 0.5% gain economists had anticipated.
The advance was led by increased demand for motor vehicles and parts, which advanced by 2.6%, while orders for defense aircraft and parts climbed 19.8%. However, orders for transportation equipment, which fell 0.5%, weighed heavily on the monthly report. Excluding transportation, factory orders would have risen 1.2%.
Despite the lack of creation of new jobs, employers managed to increase production during the 4Q, as companies continue to cut costs and postpone any new hiring initiatives. According to the Labor Dept., productivity increased by 6.2% during the quarter, just ahead of the 6% gain economists had projected. The substantial gain marked the third straight quarterly increase.
Through the past four quarters, productivity is up 5.1%, the most since a 12-month period that ended in the 1Q of 2002. Deeper inside the report, labor costs fell 4.4% during the 4Q, the third decline in the past four quarters. Hourly compensation rose 1.5% within the period, while hours worked increased 1%, the first increase since the 2Q of 2007.
With the nation’s focus on employment, the service sector expanded in January. The ISM Services Index increased to 50.5 in January, following a small increase to 50.1 in December. After a drop to 48.7 in November, economists were looking for the index to advance to a reading of 51 for January.
Included in the ISM report was the employment index, which climbed to a reading of 44.6 in January from 43.6 in December. Since December 2007, the employment index has been below 50 and hit its low of 31.1 in November 2008.
Furthermore, the new orders index advanced to 54.7% from 52% in December. The business activity index decreased from 53.2% in the previous month to 52.2%, while the price index climbed to 61.2% in January from 59.6%.
The week ahead will see a handful of economic data released that will include the Wholesale Inventories, Trade Balance and Business Inventory reports for December, as well as weekly results for Initial Claims and Crude Inventories.
The upcoming week will also include the Treasury Budget and Retail Sales readings for January, along with the Michigan Sentiment report for February.
The DOW closed the week lower, falling 55.10 points, or 0.5%, to close at 10,012.23. The S&P also finished the week in the red, slipping 7.69 points, or 0.7%, ending at 1,066.18. The NASDAQ concluded the week down, declining by 6.23 points, or 0.3%, to close at 2,141.12.
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