主题：04/03/2009 Market View -- 宁子

ISM Services improvement attempt takes a month off.

The ISM manufacturing report put in an upside month in March, showing some more slow and not so steady improvement, but improvement nonetheless. The Services ISM Friday could not match that modest improvement, falling to 40.8 from 41.6 in February and 42.9 in January. Still higher than the manufacturing survey, but also below 50, meaning that it is still contracting though at an overall slower pace the past few months.

Does the market lower read mean the improvement attempt is over? Of course not. Turns are never perfectly smooth arcs from higher to lower or lower to higher. Change means volatility. Look at any move in stocks that is reversing. A steady trend higher starts to buck and gyrate before it turns. Same with economic trends and trends in nature. All trends run smoothly until they change, and then it is back and forth jockeying as the true believers try to keep the trend alive while those voting for change try to derail it. Thus a reversion to a lower month doesn't mean a whole lot. It does if it doesn't get back on track.

After holding steady for two weeks, LIBOR makes a serious move.

Three-month LIBOR, the key LIBOR rate to watch along with the US 3-month Treasury, hung around at 1.23% for over a week. Recall that after a very positive decline to close to 1% it rebounded sharply on all of the spending from the 'spendulus' package, the weekly bailout packages, and the 'budget' (a.k.a. spendthrift manifesto), it jumped back up to the 1.25% range. That is still well below the 4+% level in September 2008, but it was a reversal of the progress, a setback, a bitter pill to swallow, and not at all good for the credit market that has to be fixed in order for the economy to recover.

So much riding on it, yet so rarely covered. Well last week it turned over a new leaf, rallying lower as the stock market rallied higher. It appears that both are forecasting some better times at least for the near term. 3-month LIBOR broke the logjam and fell from 1.22% the prior week to 1.16% Friday. Cool. The other levels are lower but basically the same. The three month is the key, and we are happy to see it finally make a serious drop once more. That indicates the road to improvement is moving once more.

Average Workweek indicates jobs will continue to struggle near term.

Thursday I went to some lengths explaining how the jobs report is a lagging indicator and does not tell us anything about the economic status. By the time jobs improve the other evidence of economic recovery is overwhelming. So the jobs report is much discussed but it is all academic.

You can, however, look inside the jobs report to find indications of whether the lagging indicator is trying to change. The best indication is the average workweek. When the economy slows the workweek typically slows as well as companies have less to do but are loathe to layoff trained and productive workers. It costs a lot of money to train a worker, and you want to keep them on if possible to avoid the costs of new training if those laid off find work elsewhere and thus don't come back when business improves. The same number of workers doing less work means the workweek falls.

At some point in a recession layoffs become inevitable no matter how much the business wants to hang onto its trained employees. That is what we have seen with the millions of lost jobs the past year. Fewer workers but still slow business, so the workweek remains low.

Then, when things start to improve the business waits to hire new workers and demand more from those still with jobs. Productivity rises as workers have to handle the increased workload without increased help. What happens? The average workweek starts to rise because more work is required. You start to see overtime and the workweek rises even more. Finally the company has to hire new workers or else risk losing the employees it held through the recession either by direct revolt from having to do too much work or getting cherry-picked by other companies looking for talent.

So on Friday when the average workweek FELL to 33.2 from 33.3 where it has held for months on end, that indicates the employment picture is not improving at all. There is not even the little uptick in the workweek to pique interest. It is instead heading lower, still on the downside slope. Hardly encouraging given all of the supposed 'jobs saved' by the stimulus package. I guess if you have not lost your job you would be considered as a job saved. How else are you going to measure it? Got to Caterpillar where a speech was made about how a few hundred jobs would be saved immediately if the stimulus was passed only to see CAT announce layoffs of several thousand workers just weeks after passage. Guess that is not the example the Administration wants to tout. Better go back to Ohio and find those 12 police officers who were kept on the payroll and milk that one more.