FOREX TRADING

ADP Signals Ongoing Weakness in Jobs, While Chicago PMI Signals Activity Remains Weak!

The U.S. economy continued to show signs of improvement in the second quarter of this year, as the pace of contraction eased noticeably from the first quarter of this year, as the economy contracted by an annual rate of 6.4% back in the first quarter, however, conditions improved drastically since then and the U.S. economy seems to be on its way to recover from the worst recession since WWII.

The U.S. economy contracted by 0.7% according to the final GDP estimate for the second quarter of this year better than median estimates of a 1.2% contraction and revised from the prior 1.0% contraction, whereas personal consumption declined by 0.9% only revised lightly higher from the prior reported 1.0% drop.

However, the better than expected GDP estimate was overshadowed by the ADP employment report and the Chicago PMI, as the ADP employment change signaled private employers shed 254,000 jobs in September worse than median estimates, while the Chicago PMI signaled that the manufacturing sector contracted in September to 46.1 from 50.0.

The ADP employment report comes ahead of Friday’s jobs report, which is expected to show that 180,000 jobs were lost in September, and that the unemployment rate continued to rise over the month to reach a 26-year high at 9.8% compared with an unemployment rate of 9.7% reported back in August.

The U.S. labor market continues to bleed amid the ongoing economic weakness, as so far companies continue to layoff more workers in order to survive the current weak conditions, as employers are still focused on reducing costs and the easiest way to do that is through laying off workers.

Unemployment will probably exceed 10% over the upcoming few months; however the important question is how much time will pass before unemployment starts to drop, as if unemployment remains elevated for an extended period of time, the economy will remain under pressure and we should expect the recovery to stall.

Meanwhile, the Chicago PMI for the month of September signaled that the manufacturing sector is still under pressure and that activity is still bottoming out in the sector, as the index signaled contraction in activity, and as we highlighted before, the recovery in the manufacturing sector won’t follow an upside trend but rather a bumpy one, as demand levels are yet to recover.

I signaled in previous reports that the economy will probably grow over a relatively strong pace during the third quarter of this year, as a result of the government’s fiscal stimulus, however, I still believe that the pace of growth will be slower during the fourth and first quarters of 2009 and 2010 respectively, as conditions are still very challenging and accordingly we should expect a gradual recovery.

The manufacturing sector joins the housing sector into recovery and both will continue to provide mixed signals over the upcoming period, as both sectors are still bottoming out and this process will probably continue over the course of this year before we start to witness a pronounced increase in activity…