Jobs Data Brings Negative Surprise

Fresh off Thursday's big losses, the major indices are indicated to start today's session lower amid a bevy of worrisome headlines.

In particular, Moscow has had to sell foreign currency reserves to prop up the ruble, Goldman Sachs has downgraded Merrill Lynch (MER) to Sell from Neutral, Nokia (NOK) cuts its third quarter mobile device market share forecast, there are reports that China's central bank needs to raise capital, and $14 billion hedge fund Atticus Capital has been placed in the awkward position of having to deny that it is liquidating positions and closing down.

There is a nervous tone in the market, and not just in the U.S. market.  Foreign averages, led by a 6% plunge in Russia's stock market, have been hit sharply in the wake of Wall Street's selloff as global slowdown concerns have grown more pronounced.

The August employment report isn't helping to fend off those concerns.

The Bureau of Labor Statistics reported nonfarm payrolls declined by 84,000 positions last month while the July payrolls number was revised down to -60,000 from -51,000 and the June figure was revised to -100,000 from -51,000.

The August number was basically in line with expectations that called for a decline of 75,000 positions and marked the eighth straight month of a decline in nonfarm payrolls. The average workweek held steady at 33.7 hours while hourly earnings rose 0.4% versus an estimate for a 0.3% increase.

The big surprise from a headline perspective was the spike in the unemployment rate to 6.1% from 5.7%. This headline prompted a sharp selloff in the futures market as traders didn't like the implications for consumer confidence and consumer spending in the months ahead.

The 84,000 decline in nonfarm payrolls represents a 0.06% decline from a nonfarm employment base of 137.6 million. That qualifies as a slight decline and isn't as bad as will be reported in the papers, which will focus on the unemployment rate. Overall, there isn't any real good news in the August employment report.

Not surprisingly, the initial response to the data has been decidedly negative.  The question now is whether the bad news got priced in with yesterday's selloff.  It won't seem that way at the start of trading, but don't be surprised if there is some effort at least to buy on the opening weakness.

--Patrick J. O'Hare, Briefing.com