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THOUGHTS ON THIS MORNING’S DATA

Bad news for stocks this morning.  The ADP employment report is forecasting a 254K decline in payrolls this week.  That is substantially larger than expected, however, the ADP report has proven to be less than reliable.

The GDP revision came in better than expected at -0.7%.  Econoday reports:

Yes, we are very much looking in the rear view mirror at this point. But the third estimate for second quarter GDP clearly shows the economy at recession bottom-with the weight of the evidence of more recent data arguing that the recession technically is over. And the component mix for second quarter GDP adds to the argument that the third quarter will be moderately positive. For the second revision to second quarter GDP, the Commerce Department nudged up its estimate to an annualized 0.7 percent decrease from the previous estimate of a 1.0 percent decline. The market forecast was for a 1.2 percent decrease. The upward revision was primarily due to higher estimates for business spending on software and nonresidential construction. Net, final sales are now more positive at an annualized 0.7 percent in the second quarter, compared to the second estimate of a 0.4 percent gain.

The most alarming and market moving news of the day is the Chicago PMI which came in well below expectations at 46.2.   Analysts had expected a reading of 52.  The bad news here is that the Chicago PMI has a high correlation with ISM which means we could be beginning to see the first signs of analysts overshooting to the upside.  Analysts currently expect a very robust ISM of 53.5 tomorrow – that could be overly optimistic and stocks are preparing for the bad news.

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