Stocks finished lower Friday after the August employment report came in much weaker than economists expected, showing further evidence of a struggling labor market. The declines come after the major averages rallied to new highs for the year in the last few sessions amid mounting evidence that the economy was strengthening.
The Dow Jones industrial average fell 84.56 points, or 0.88%, to 9,503.34. The broader Standard & Poor's 500 index edged down 6.6 points, or 0.64%, to 1,021.37. The tech-heavy Nasdaq composite index lost 10.85 points, or 0.58%, to 1,858.12.
Nonfarm payrolls dropped 93,000 in August following a revised 49,000 decline in July (down 44,000 previously). Economists had expected a gain of around 15,000 jobs. The unemployment rate slipped to 6.1% from 6.2%. The workweek was steady at 33.6 hours, while average hourly earnings were up 0.1% following a 0.3% gain in July.
As for payrolls, weakness was widespread except for construction and education and health. Manufacturing lost another 44,000 jobs, business services was off 28,000, and the government shed 26,000 jobs, as the budget deficit crunch facing most forms of government continued to damp new hiring.
"Overall, the data suggest that despite the sharp upswing in economic activity over the last couple of months, there's still little indication of any pick-up in hiring," says MMS International.
Next week, economic releases include consumer credit on Monday, wholesale inventories and sales on Tuesday, and the trade report and weekly jobless claims on Thursday. The key reports, though, will be Friday's updates on retail sales for August, the producer price index, and the University of Michigan's consumer sentiment index.
While blue chips fell Friday, technology stocks held up a bit better amid upbeat news from Intel (INTC), which said in a midquarter update after Thursday's market close that business is improving. Intel said it expects third-quarter revenue to be between $7.6 billion and $7.8 billion, vs. its previous range of $7.3 billion to $7.8 billion announced on Aug. 22. Its gross margin is expected to be toward the high end of the previous range of 56%, "plus or minus a couple of points," the company said in a press release.
Another chip maker, National Semiconductor (NSM), which reported an earnings surprise Thursday, added to gains after UBS Financial upgraded the stock to buy from neutral.
Also showing strength were pharmaceutical stocks after Eli Lilly (LLY) raised its earnings outlook. Lilly says by the end of 2004 that it expects Evista, Gemzar, and Humalog will have joined Zyprexa as billion-dollar products, and that it's preparing to launch four new products. It reaffirmed third quarter EPS outlook of 65 cents to 67 cents, and sees $2.55 to $2.60 EPS (adjusted) for 2003.
Wireless telecom stocks rose after Prudential raised its wireless services industry rating to market outperform from market perform based on positive data, stable pricing, steady channel checks, and solid second-quarter trends which appear to persist into the third quarter.
Much worse than expected payrolls data, coupled with dovish comments from Federal Reserve officials Thursday, short covering, and impulsive technical buying Friday, boosted Treasury prices, says MMS International. Moreover, the entire curve sported surging gains to end the week on a high note in Treasuryland. The 10-year note yield fell to 4.35%.
In the currency market, the U.S. dollar sank 1.75% vs. the euro, but held steady against the yen.
European stock markets were mixed. London's Financial Times-Stock Exchange 100 index finished with a gain of 8.4 points, or 0.2%, to 4,257.2. In Paris, the CAC 40 fell 17.94 points, or 0.53%, to 3,392.75. Germany's DAX index lost 60.96 points, or 1.66%, to 3,607.71. There was little reaction to report July industrial production rose 2.4%, the largest increase in three years.
Asian markets finished higher Friday. In Japan, the Nikkei 225 index gained 3.82 points, or 0.04%, to close at 10,650.77, weighed by profit taking. In Hong Kong, the Hang Seng index gained 31.99 points, or 0.29%, to close at 11,170.61.