Week Ahead: US Jobs and European Debt on Tap
After learning that personal incomes dropped for the first time in 22 months, all eyes will turn to the employment report on Friday. You might be excused if you blocked out the August report, when the U.S. economy created NO jobs; the unemployment rate was 9.1 percent; and the under-employment rate was 16.2 percent. Economists aren't too upbeat about the September forecasts, with expectations of 50,000 new jobs and an unemployment rate at 9.1 percent.
Through august, the economy has added 872,000 total non-farm jobs or 109,000 per month. While better than the pace of last year, the economy still has lost 6.9 million jobs since beginning of the recession. One sobering chart from the Bureau of Labor Statistics paints the grim picture of the past decade:
Meanwhile, the Greece debt/death-watch will be front and center as Eurozone finance ministers meet this week to further discuss solutions to the sovereign debt crisis. Last week, Germany approved to expand Europe's bailout fund (the European Financial Stability Facility or "EFSF"). The problem of course is that by now, everyone realizes that $600B is not going to be enough to stop the crisis-estimates are closer to $2T. (Think Roy Scheider in "Jaws": "You're gonna' need a bigger boat.")
Greece is not the only problem in Europe-of the PIIGS (Portugal, Ireland, Italy, Greece and Spain), it's Italy that's making everyone nervous. Italy owes as much money as Spain, Greece, Portugal and Ireland combined and has the second-highest debt-to-GDP ratio in the euro zone, after Greece. Europe is definitely going to need a bigger boat.
Finally, there's the problem of the European banks, which have about $2.5 trillion worth of exposure to the PIIGS. On July 21st, bondholders, many of whom are the big banks, agreed to take a 21% loss on these loans, which leads just about everyone to say in unison "When PIIGS fly!" Greek bondholders are going to take a much bigger loss on their exposure, which means that they will need more money, from either the private sector or the public sector (more likely) to remain strong enough to continue operating. In other words, Europe needs a much bigger boat.
Or, as a German lawmaker put it, after he voted: "The step that we are taking now will certainly not be sufficient...there will be another sequel to the euro thriller." How very October of him!
The European debt crisis, along with a general worry of a global economic slowdown, spelled bad news for stocks and oil for the week, the month and the quarter. In fact, it was the worst quarter for stocks since the height of the financial crisis.
- DJIA: 10,913, up 1.3% on week, down 6% on month, down 12% on quarter, down 5.7% YTD
- S&P 500: 1131, down 0.4% on week, down 7.2% on month, down 14.3% on quarter, down 10% YTD
- NASDAQ: 2415, down 2.7% on week, down 6.3% on month, down 12.9% on quarter, down 8.9% YTD
- November Crude Oil: $79.20, down 0.8% on week, down 10.8% on month, down 17% on quarter
- December Gold: $ 1622.30, down 1% on the week, down 11.4% on month, up 7.8% on quarter
Total bank failures for 2011 = 74 (1 new bank failure over weekend)
FACTOIDS OF THE WEEK: Stock Market Perspective
Yes, it was the worst quarter since the financial crisis, but the news may not be so bad, according to my colleague Allan Roth. Allan always likes to remind us that the best way to measure stocks is the Wilshire 5000, the broadest measure of US stocks. Looking at the quarter through the lens of the Wilshire, here's what you will see:
- Stocks have fallen five consecutive months (Sep: -7.75%, Aug: -5.95%, July: -2.21%, June: -1.7%, May: -1.23%)
- For the quarter, the total return was -5.16%
- Stocks are now down 16.63% from the 2011 stock market highs
- The stock market is 19.1% below the pre-real estate and financial crash all time high in 2007
- The stock market is 80.6% higher than the bottom reached on March 9, 2009
IN THE WEEK AHEAD: The main focus of the week will be the September Jobs report. It's expected that 50,000 non-farm jobs were created and the unemployment rate will remain at 9.1 percent. Eurozone finance ministers will meet to discuss solutions to the sovereign debt crisis.
Mon 10/3:
Motor Vehicle Sales
10:00 ISM Manufacturing Index
10:00 Construction Spending
Eurozone finance minister meeting begins
Tues 10/4:
10:00 Factory Orders
Weds 10/5:
7:30 Challenger Job-Cut Report
8:15 ADP Employment Report
10:00 ISM Non-Manufacturing Index
Thurs 10/6:
Chain Store Sales
8:30 Weekly Jobless Claims
ECB Policy Meeting
Fri 10/7:
8:30 September Employment Report
10:00 Wholesale Trade
3:00 Consumer Credit
