A larger than expected drop in private-sector employment dampened sentiment Wednesday. Thursday's watch list: initial jobless claims and the ISM services index
U.S. stocks closed lower Wednesday, losing ground for a fourth straight session, as economic uncertainties kept buying subdued. ADP data showed a larger-than-expected drop in August private-sector payrolls as investors awaited Friday's U.S. non-farm payrolls report. Also Wednesday, reports showed a rise in July factory orders and an upward revision to second-quarter productivity.
The Federal Reserve's minutes from its Aug. 11-12 meeting showed that board members see a slow economic upturn along with subdued inflation.
The market seems to have discounted some of the recent favorable economic news, notes S&P MarketScope.
On Wednesday, the 30-stock Dow Jones industrial average finished lower by 29.93 points, or 0.32%, at 9,280.67. The broad Standard & Poor's 500-stock index shed 3.29 points, or 0.33%, to 994.75. The tech-heavy Nasdaq composite index fell 1.82 points, or 0.09%, to 1,967.07.
Treasuries and gold surged. The dollar index fell. Oil futures were mixed after the Energy Dept.'s weekly inventory report showed crude oil stocks fell by a less-than-expected 400,000 barrels, gasoline stocks decreased 3.00 million barrels, and distillate stocks rose 1.2 million barrels.
Thursday's key economic reports: Weekly initial jobless claims and the Institute for Supply Management's August nonmanufacturing index.
Wells Fargo () plans to repay the U.S. bank bailout program shortly without raising equity, reports Bloomberg News. "We will pay it back, but we're going to pay it back in a shareholder-friendly way," John Stumpf, president and chief executive officer, said in an interview on Bloomberg Television.
The Mortgage Bankers Association will call on Congress to transform government-controlled mortgage lenders Fannie Mae (FNM) and Freddie Mac (FRE) into several smaller privately held companies that would issue mortgage securities with a government guarantee, according to a Wall Street Journal report. The proposed framework would give successor entities to Fannie Mae and Freddie Mac authority to create securities backed by certain types of mortgage.
In economic news Wednesday, U.S. factory orders rose 1.3% in July from a revised 0.9% increase in June (was 0.4%). The 4.9% surge in durable goods on the month was revised up to 5.1%. Excluding transportation, orders slipped 0.7%. Nondefense capital goods orders excluding aircraft dipped 0.3%. Shipments were flat. Inventories fell another 0.7%. The inventory-shipment ratio declined to 1.40 from a revised 1.41 (was 1.42). The headline data is a little disappointing, but that is mitigated a bit by the upward revision to June, says Action Economics..
U.S. nonfarm productivity growth was revised up to a 6.6% pace in the second quarter, compared to the advance report's 6.4% pace. Unit labor costs were revised lower to a -5.9% growth rate from -5.8% previously. Output was revised up to -1.5% from -1.7%, while employee hours were steady at -7.6%. Compensation per hour was revised modestly higher to 0.3% from 0.2%, while real compensation costs were revised up to -1.0% from -1.1%. On a year-over-year basis, productivity is posting a 1.9% growth rate vs. 1.8% previously, while unit labor costs weakened further to a soft -1.2% pace, double the -0.6% previously reported.
The U.S. ADP private employment report showed private payrolls fell 298,000 in August following a revised 360,000 drop in July (from -371,000). That's the smallest decline since September, 2008. Goods producing companies lost 152,000 jobs, manufacturing lost 74,000, and services lost 146,000. Construction jobs declined 73,000, a 31st straight monthly drop. The headline data was a little worse than expected, says Action Economics.
TrimTabs Investment Research estimates that the U.S. economy lost 335,000 jobs in August, which is nearly 50% more than the current consensus estimate of 225,000 jobs lost.
Challenger, Gray & Christmas said planned layoffs at U.S. firms fell to 76,456 in August, down 21% from 97,373 in July. While the rate of layoffs has slowed, the cumulative number of job cuts has climbed to 1.07 million from January through August, 60% higher than the same period a year earlier. But August's layoffs were the second smallest monthly total so far in 2009, the firm said. It also marked the sixth time in the past seven months that job cuts fell from the prior month.
U.S. MBA mortgage market index fell 2.2% in data released earlier, along side a 1.0% drop in the purchase index and a 3.1% decline on refinancing for the week ended Aug 28. Average mortgage rates decreased across the spectrum, but this didn't seem to buoy activity. The average 30-year fixed rate fell 9 basis points to 5.15%, the 15-year fixed sank 1 basis point to 4.57% and the 1-year ARM fell 3 basis points to 6.71%. Yet the bulk of recent housing indicators have been turning higher and mortgage broker sources say that the Fed will need to sustain its MBS and agency purchases to keep mortgage rates low and that beneficial trend intact.
The ABC News consumer comfort index was unchanged at -45 in the week ended Aug. 30, The survey said 8% of respondents expressed confidence in the economy, unchanged from the week before. Also, 48% of those polled said their own finances were in good standing, down from 49% in the prior week. In assessing the buying climate, 27% of respondents said it was good, up from 25% a week earlier.
The Eurozone second-quarter GDP was confirmed at -0.1% quarter-over-quarter, with the annual rate revised down to -4.7% The Eurozone July PPI fell 0.8% month-over-month and 8.5% year-over-year, vs. -6.5% year-over-year in June.
In company news Wednesday, shares of BP PLC (BP) were higher after the company announced a giant oil discovery at its Tiber Prospect in the deepwater Gulf of Mexico.
Textron's (TXT) shares were boosted by a Goldman upgrade to "buy."
Take-Two Interactive Software (TTWO) posted a $0.72 third-quarter loss per share, vs. earnings per share (EPS) of $0.67 one year earlier, on a 68% sales decline. The company said the year-earlier quarter benefited from the post-launch performance of Grand Theft Auto IV. Excluding items, Take-Two posted a third quarter loss of $0.66, vs. Wall Street's view of a $0.68 loss.
Verifone Holdings (PAY) posted third quarter EPS of $0.26, $0.32, on an 18% revenue decline. Wall Street was looking for EPS of $0.18.
Joy Global (JOYG) posted third-quarter EPS of $1.21, vs. $1.03, on a 5.8% revenue rise.
Jos. A. Bank Clothiers (JOSB) posts $0.68 vs. $0.48 second-quarter EPS on a 6.2% same-store sales rise and a 9.8% total sales rise.
Alactel-Lucent (ALU) announced the launch of an offering of bonds convertible into and/or exchangeable for new or existing shares of Alcatel-Lucent due Jan. 1, 2015, in an initial nominal amount of €750 million, which may be increased by 15% to approximately €862.5 million in the event that the over-allotment option is exercised in full at the latest on Sept. 8, 2009.
ADC Telecommunications (ADCT) posted third-quarter GAAP earnings from continuing operations of $0.06, vs. $0.11, on a 26% revenue decline. Non-GAAP (adjusted) EPS were $0.17.
CA, Inc. (CA) announced that CEO John A. Swainson plans to retire from the company on December 31, 2009, or upon the earlier selection of a successor. The company also reaffirmed its fiscal 2010 financial outlook that was issued with first-quarter results in July.
Vonage Holdings (VG) announced that Apple (AAPL) approved its mobile application for iPhone and iPod Touch. Vonage is currently conducting a beta test and general availability will be announced at a later date.
United Therapeutics (UTHR) said its board has approved a 2-for-1 stock split.