June 2: Waiting For Friday’s Jobs Report – Economic Highlights

The market is justifiably nervous about the economy’s growth momentum. The expectation earlier on was that the first quarter’s sub-par growth pace was due to transitory factors that will get reversed in the second and subsequent quarters. But over the last month or so we started seeing a slew of weak economic readings indicating that the first-quarter softness has continued into the current period.

Even as GDP growth estimates for the current quarter have started coming down in recent days, estimates for the second half of the year have remained unchanged at the over-3% level. But weaker than expected economic readings, such as Wednesday’s ISM/ADP and today’s Jobless Claims reports, increase the odds that we will start seeing those estimates coming down in the coming days and weeks.

It is with this unsettling backdrop that the market is looking forward to tomorrow’s non-farm payroll report for May. Positive momentum on the manufacturing side and favorable trends in the labor market had emerged as two reassuring elements in this economic recovery.

But the red hot manufacturing sector appears to have started cooling off, as indicated by Wednesday’s ISM Index and a host of regional manufacturing reports in the last few days. And signs on the labor market front also don’t appear to be promising following Wednesday’s disappointing ADP report and this morning’s mixed Jobless Claims numbers. The ADP disappointment has prompted downward revisions to expectations for May jobs numbers coming out Friday. A negative surprise on that front will most likely result in cuts to second-half growth expectations.

Today’s Jobless Claims report mixed, with the weekly number dropping by 6 thousand to 422 thousand, but the drop was from a upwardly revised level for the preceding week. The prior week’s level was raised from 424 thousand to 428 thousand. The expectation was for a 4 thousand drop to 420 thousand. This maintains the unfavorable trend in this key series that has remained in place in recent weeks. The 4-week average dropped by 14 thousand to 425 thousand.

On the earnings front, we got a better than expected report from Joy Global (JOYG) this morning. The mining equipment maker came ahead of earnings and revenue expectations and guided higher. Orbitz Worldwide (OWW), got relief from an Illinois court in its dispute with American Airlines (AMR), paving the way for AMR’s flights to show up on the travel site. Shares of Apollo Group (APOL), ITT Educational Services (ESI) and other for-profit education companies will remain in the spotlight today as a key ruling from the U.S. Department of Education has turned out to be less severe than initially feared.

The major news of the day is the mixed read on the Jobless Claims front, which will give further impetus to bringing down expectations for tomorrow’s non-farm payroll report.

Today’s economic releases include Factory Orders which is expected today at 10:00 AM EST, and is expected to decrease by 1% following the March increase of 3% to $462.9 billion and Crude Inventories which is scheduled for release today at 10:30 AM EST.