Is the economy accelerating, the inverse of popular narrative? August’s ISM non-manufacturing index rose to the second highest level since 2005. The backlog jumped to the greatest point since 2007 and the new order index is now at a 10 year high. This index measures about 88% to 90% of the economy and such levels are consistent with 4.5% growth.
While I don’ think growth is that strong given the ISM manufacturing index that is posting lower numbers because of the dollar and slower growth in the emerging markets. This index represents about 12% of the economy and is suggesting growth is around the 1.5% to 2% range.
As stated above, emerging markets are slowing however growth in the advanced economies of the US, Japan and Europe has continued to pick up. These countries/regions represent about 70% of global production.
Today the all-inclusive August labor report is released. Analysts are expecting a 5.2% unemployment rate and a 62.6% labor participation rate. Will this data validate recent statistics that the economy is recovering at a pace faster than most expect?
Turning to the markets, Wednesday afternoon CNBC interviewed the head of the SEC. I found his comments fascinating. It was strongly inferred the recent volatility can be partially blamed upon the full implementation of the Volcker Rule, implementation that occurred around the end of July.
Second, the Commissioner commented about the impact of HFTs/ETFs are having upon the markets, stating that “more has to be done” regarding the leveling of the playing field between the HTFs and traditional firms, adding that HTFs have greatly contributed to current volatility.
Can I remotely suggest two different thoughts? First all regulations have unintended consequences, consequences that are perhaps worse than the “issues” that these regulations were originally designed to control. Second, is this unleveled playing field bordering on the edge of manipulation where the odds are stacked against all but a chosen few?
Yesterday’s trading was again volatile albeit the volatility ranged between unchanged and a 200 point advance closing about 20 points higher. Oil ended the session about $0.50/higher to just under $48/barrel.
Last night the foreign markets were down. London was down 1.66%, Paris down 2.15% and Frankfurt down 2.09%. Japan was down 21.5% and Hang Sang down 0.45%.
The Dow should open moderately lower with concerns over the payroll data, fearing if data is too strong, the odds of a change in monetary policy rises. The data is released at 8:30. The 10-year is up 6/32 to yield 2.14%.