While you were sleeping: US payrolls and PMI point to slow recovery

Thursday 1st October 2009

A measure of business activity in Chicago, used as a national benchmark in the US, and data showing companies cut payrolls more-than-expected suggest the world’s biggest economy will manage only a slow recovery.

The Institute for Supply Management-Chicago’s business barometer fell back into contraction in September, with a reading of 46.1, down from 50 in August. The result was lower than economists had expected.

US companies cut payrolls by 254,000 jobs this month in September, according to ADP Employer Services, more than the 210,000 expected to be shed.

The reports came as the Commerce Department released its revised estimate of second-quarter gross domestic product, which contracted 0.7%, less than the 1% pace reported in August. Economists expect the US economy resumed growing in the third quarter.

Former Federal Reserve Chairman Alan Greenspan said the economy will slow next year and the jobless rate won’t recover much from its current rate of 9.7% as this year’s rally in stocks since March fades.

“The odds are we flatten out,” Greenspan told Bloomberg. That’s likely to put a “dull face” on economic activity in 2010.

Stocks on Wall Street slipped. The Dow Jones Industrial Average fell 0.4% to 9700.19 and the Standard & Poor’s 500 Index declined 0.6% to 1054.48. The Nasdaq Composite fell 0.3% to 2118.13.

Darden Restaurants dropped 6.1% to US$33.94, leading the S&P 500 lower, after the owner of the Olive Garden and Red Lobster restaurant chains in North America said same-store sales may fall more than expected this year, causing profit to be at the lower end of its target range.

Nike Inc. climbed 7.2% to US$64.42 after the sports shoe and clothing company posted first-quarter earnings that beat estimates.

CIT Group Inc. tumbled 40% to US$1.31 amid speculation the lender may be forced into bankruptcy.

Bank of America fell 1.8% to US$16.86 after announcing it had agreed to sell its Columbia Management unit’s long-term asset management business to Ameriprise Financial for between US$900 million and US$1.2 billion. The lender is still considering options for Columbia’s short-term asset management business.

The dollar declined against the euro and yen amid optimism the recovery in the US hasn’t been derailed, helping keep alive demand for higher-yielding, or riskier assets.

Weighing on the greenback, the International Monetary Fund cut its estimate for global writedowns on loans and investments by 15% to US$3.4 trillion amid signs of strengthening credit markets and economic recovery.

The dollar fell to US$1.4623 versus the euro from US$1.4587, heading for a quarterly decline of more than 4%. The greenback weakened to 89.76 yen from 90.09. The yen traded at 131.27 per euro from 131.40.

Shares fell in Europe. The Dow Jones Stoxx 600 declined 0.5% to 242.47. Banks paced the decline. Among regional benchmarks, the UK’s FTSE 100 fell 0.5% to 5133.90, Germany’s DAX 30 fell 0.7% to 5675.16 and France’s CAC 40 declined 0.5% to 3795.41.

BNP Paribas fell about 3%, Societe Generale fell 2.5% and Deutsche Bank declined 2.4%.

Legal & General rose 6.1% amid talk it could be a takeover target. Man Group, the hedge fund firm, jumped 7.5% after saying assets rose to an estimated US$43.8 billion at the end of September.

Crude oil climbed after a US Energy Department report showed inventories of gasoline unexpectedly dropped by 1.66 million barrels to 211.5 million barrels last week.

Crude oil for November delivery jumped 5.8% to US$70.56 a barrel on the New York Mercantile Exchange.

Gold had its biggest gain in almost a month as the US dollar declined, stoking the appeal of the precious metal as an alternative investment.

Gold futures for December delivery rose 1.5% to US$1,009.30 an ounce on the New York Mercantile Exchange.

Businesswire.co.nz

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