Mid-Day Recap: Weak Labor & Services Data Push Down Equities
Markets opened lower Wednesday after two labor reports before the bell were softer than expected, and when another report on the services sector failed to meet the consensus forecast at 10 am, and the sell-off extended.
The S&P 500, which crossed the 1,000 mark for the first time since October on Monday, has shrunk 0.81% to 997 in the first half of trading today. Worse, the Nasdaq shed 1.43% to 1,982, and the Dow lost 0.91% to 9,235.
Data Recap:
At 7:30, the Challenger Mass Layoffs report said there were 97,373 job cut announcements in July, a worse figure than the 74,393 announcements in June.
“Following five straight monthly declines, layoff announcements picked up somewhat in July,” said analysts at RDQ. “However, layoff intentions were 5.7% below the prior year’s level and well below the levels of job cut announcements seen in the fourth quarter of 2008 and the first quarter of 2009.”
At 8:15, the ADP Private Employment report said 371k private jobs were lost in July, a harsher figure than the -300k median forecast, but an improvement from the -463k print in June and the smallest decline in nine months.
“The improvement relative to last month is encouraging, though we continue to believe that the U.S. labor market remains deeply fractured,” said strategist Ian Pollick from TD Securities.
More soft news was reported at 10:00 when the ISM Non-Manufacturing Index, a sentiment-based index of the services, construction, and financial industries, nudged down to 46.4 in July. Business activity, new orders, and employment were all lower.
Markets traded lower on the release but the reaction from economists were more subdued. “The ISM report is a modest setback for recovery enthusiasts, but likely just means the long-awaited expansion will be subdued and choppy rather than delayed,” said Sal Guatieri from BMO Capital Markets.
Traders may have been selling in anticipation of Friday’s employment report, as the ISM’s employment component was the third labor report this morning to show weaker conditions than previously thought.
“The biggest concern is that the employment index fell a couple of points, which, alongside a disappointing ADP report, flags a minor downside risk to our -300,000 estimate for July nonfarm payrolls,” Guatieri added.
Lastly, 10:00 also saw a stronger-than-expected Factory Orders release, which actually rose 0.4% in the month, against a median forecast that looked for a 0.5% decline.
Orders for durable goods declined 2.2% in June, revised from an earlier -2.5% print, while orders for nondurable goods rose 2.7%, in large part owing to a 14.3% increase in petroleum refinery orders.
"The general theme is that the restocking is basically better than expected with factory orders," said Doug Roberts from Channel Capital Research. “With factory orders, we've been a service-oriented economy so a restocking if there's no ultimate demand at the other end can be temporary and non-sustainable. So that's the big concern right now.”