Wall Street wasn't in a jovial mood as April Fools' Day 2009 got underway. Investors were greeted by news of a much larger than anticipated decline in private payrolls in the ADP employment survey for March. The news caused some jitters about the size of U.S. job losses to be revealed in the government's employment report for March, scheduled for release on Apr. 3. It also weighed on major stock indexes, which had closed out March by posting their strongest monthly gains in six years in the previous session.
But the Street's mood brightened—and major stock indexes moved from negative to positive territory—after the release of better than forecast data on construction spending, pending home sales, and the Institute for Supply Management's manufacturing index.
What did Wall Street economists and strategists have to say about the mix of data—and other topics—on Apr. 1? Here is a sampling, as compiled by BusinessWeek staff:
Michael Englund, Action Economics
The ADP Employment payroll survey revealed a hefty 742,000 March drop, which sharply undershot our own -655,000 private payroll estimate…[t]he industry breakdown for March showed downside surprises across industries, with a 327,000 drop for goods producers that includes a 206,000 decline at factories, and a 415,000 decline for the service sector.
The ADP figures broken down by company size continue to show a skewing of job loss toward medium and small-size firms vs. large firms, as opposed to the last cycle when the spread was more uniform, though the distribution this time around is proportional to segment-size. In March, medium-size firms posted a hefty 330,000 drop, vs. prior declines of 310,000 in February, 300,000 in January, and an average monthly drop in the six months before that of 157,000. Small-firm payrolls fell by 284,000 in March, vs. prior declines of 270,000 in February, 211,000 in January, and 129,000 per month over the prior six months. These payroll categories are declining at roughly double the 2001 recession peak rates of 190,000 for medium-size firms and 128,000 for small firms.
In contrast, large firm payroll declines are only just bouncing around the 110,000 peak rate from 2001, with a 128,000 drop in March, a 126,000 drop in February, a 123,000 drop in January, and a 68,000 average drop in the prior six months. Construction firms tend to be small or medium-size, which could explain this pattern, though auto and parts companies tend to be large.
Tony Crescenzi, Miller Tabak
The Institute for Supply Management's manufacturing [index] rise to 36.3 in March, from 35.8 in February, was the third consecutive monthly increase since falling to a 27-year low of 32.9 in December. Further increases look likely in the months ahead because of TALF and PPIP, and because the American Recovery & Reinvestment Act will inject roughly $100 billion into the U.S. economy in the current quarter. The ISM measures the direction of change, not magnitude, so it is likely these government programs will give the ISM a boost. And that's likely to boost investor sentiment. Riskier assets will perform better in this environment.
The most important development in [the March] report was the sharp increase in the new orders component. It jumped 8.1 points, to 41.2, its highest level since August 2008. New orders account for 30% of the overall index, the most of any component, reflecting its high predictive value.
Beth Ann Bovino, Standard & Poor's
U.S. construction spending fell 0.9% in February, which was better than the -2.0% expected by markets. However, this comes after downward revisions the prior two months. January was downwardly revised to -3.5%, from -3.3% previously, while December was revised down to -3.1%, from -2.4%. Residential construction spending fell 4.1% in February after a 3.5% decline previously (revised from -2.8%). Nonresidential construction rebounded 0.5% following a 3.6% drop in January (previously -3.5%). Private construction activity dropped 1.6%, while public works rose 0.8%. The headline data aren't as bad as expected, but the downward revisions the prior two months take away some of the charm.
[The] U.S. pending home sales index rebounded 2.1%, to 82.1, in February, partially offsetting the 7.7% decline to 80.4 in January. The index is still down 6.2% over last year. Gains were posted in three of the four regions, with only the West posting a decline on the month (-13.5%). The better-than-expected data help support hopes that the housing market is stabilizing.
Tracy Knudsen, Lowry's Reports
[The Mar. 31 stock market advance] was a respectable rally effort, but it did not provide enough evidence to suggest the coast is clear and a further advance is likely in the days ahead. [A] late-day sell-off, which erased a good portion of the gains posted earlier in the day, does call into question buyers' willingness to follow prices higher in the near term. In addition, some short-term indicators remain in overbought territory, suggesting further market weakness is possible. At this juncture, the onus appears to be on the bulls to extend this rally in the days ahead.