MarketView for September 4

Summary   

The major equity indexes closed higher on Friday as investors took into consideration a mixed jobs and employment report that showed smaller-than-expected job cuts in August, although the unemployment rate hit a 26-year high. Gains in share prices were broad-based, with technology shares leading the charge. Semiconductor stocks gained some momentum after Intel's chief executive said aging personal computers and Microsoft's launch of Windows 7 will prompt companies to start spending on PCs next year.

Intel ended the day with a gain of 1.1 percent to close at $19.64, while Microsoft was up 2.1 percent at $24.62. Novellus closed up 2.9 percent at $19.63 after the semiconductor manufacturing tool maker lifted its forecasts for the current quarter. Shares of memory chip developer closed out the day with a gain of 11.4 percent to close at $17.75 on speculation that Samsung would buy the company for $25 to $27.50 per share. IBM closed up 1 percent at $117.46 and was a key component on the Dow Jones industrial average.

Looking at the week’s performance of the leading equity indexes, the Dow was down 1.1 percent, the S&P 500 fell 1.2 percent and the Nasdaq was down 0.5 percent due to a sharp sell-off in the first three days of the week.

Declines in payrolls for August were the smallest in a year, but the unemployment rate rose to a level not reached since June 1983, according to the Labor Department.

Shares of Fannie Mae and Freddie Mac rose on news that they were back in compliance with New York Stock Exchange share listing rules, reinstating somewhat their respectability among investors. Fannie Mae was up 7.9 percent on the day to close at $1.77, while Freddie Mac rose 5.4 percent to close at $1.97.

Unemployment Up and Job Losses Down

The rate of jobs being lost in the economy hit a one-year low last month but the unemployment rate jumped to a 26-year high of 9.7 percent, the Labor Department reported on Friday. According to the Department, employers cut 216,000 jobs, the lowest number since August 2008, and revised job losses for June and July to show 49,000 more jobs lost than previously reported.

A gauge of labor market slack that measures the unemployed, people working part-time for economic reasons, and those only marginally attached to the labor force, rose to a record 16.8 percent in August from 16.3 percent in July.

The labor force increased by 73,000 in August, which indicated the return of some jobless workers who had given up looking for work, accounting for part of the rise in the unemployment rate.

Since the start of the recession in December 2007, the economy has shed 6.9 million jobs, the department said. Stubbornly high unemployment is wearing on consumer confidence and crimping domestic demand, pointing to an anemic recovery from the worst slump in 70 years. Consumer spending accounts for over two-thirds of U.S. economic activity. However, the August report confirmed the pace of layoffs was easing from early this year, when nearly three quarters of a million jobs were lost in January.

Manufacturing employment fell by 63,000, with a total of 2 million factory jobs lost since the start of the recession. Payrolls in construction industries dropped 65,000 after falling 73,000 in July. The service-providing sector purged 80,000 workers in August, while the goods-producing industries shed 136,000 positions.

Education and health services continued to add jobs, with payrolls increasing 52,000 in August after rising 21,000 in July. Government employment fell 18,000 after slipping 28,000 in July.

The average workweek, which closely correlates with overall output and gives clues on when firms will start hiring, was unchanged at 33.1 hours in August. Average hourly earnings rose to $18.65 in August, rising for a fourth straight month, reflecting an increase in the legal minimum wage. Earnings were at $18.59 in July.

Here is the bottom line. The median duration of unemployment fell and it is taking a less time for workers to become reemployed after being laid off.  In addition, average hourly earnings are up 2.6 percent from a year ago and average weekly hours remained unchanged.

Crude Little Changed Before Long Weekend

Crude oil futures for October delivery were little changed on Friday, settling up 6 cents per barrel at $68.02. London Brent crude settled down 30 cents at $66.82.

Earlier, oil prices had slipped after the U.S. Labor Department reported that the unemployment rate jumped to 9.7 percent in August, despite fewer job losses than expected. Crude prices have been trading in a range between $65 and $75 per barrel since the start of August, with prices varying on economic data as traders try to determine the speed of the economic recovery.

Traders are also watching for clues about whether OPEC will change its output policy when it meets next week in Vienna. Rising oil inventory levels in many consuming countries have been a concern for OPEC members. Still, the consensus is that OPEC will agree to maintain its official output target to keep prices stable around $70. Oil demand and supply data reviewed by a panel of OPEC economists ahead of the September 9 meeting indicate no need for a change in output policy, two OPEC delegates said on Friday.