Big revisions help brighten monthly US jobs report

(AP:WASHINGTON) The 165,000 jobs the U.S. economy added in April weren't the only reason to be cheered by Friday's employment report.

Nearly as significant were the Labor Department's revised estimates of how many jobs employers added in the previous two months. Whenever the government issues its employment report for the past month, it also revises the job totals for the previous two.

It turns out, the department said Friday, that many more jobs were created in February and March than first thought.

Initially, a severe slowdown seemed to have occurred in March: The government had estimated that just 88,000 jobs were added. That would have been the fewest in nine months.

That was then. Now, March looks much stronger. On Friday, the department said its revised estimate is that employers added 138,000 jobs in March.

The revisions for February were even better. The government now says employers added 332,000 jobs in February, compared with the 236,000 initially reported. Among private companies, 319,000 jobs were added _ the best monthly figure in nearly eight years.

Combined, the job gains from the February and March revisions totaled 114,000. Add them to April's hiring, and the economy has 279,000 more jobs than it did before Friday's report.

Over the past 12 months, the department's revisions have added a total of 309,000 jobs to the nation's payrolls.

The department revises each month's figures over the subsequent two months by reviewing further data from the companies and government agencies it surveys. Typically, about 75 percent of the 145,000 employers it surveys respond in time for each month's initial report. The response rate usually rises to about 95 percent two months later, when the third estimate is released.

The department also revises five years' worth of data each year in what it calls its " benchmark" annual revision. For those updates, it uses actual job counts from unemployment insurance tax records.

The revisions usually aren't as large as they were this time. After two revisions, February's total is now 96,000 higher than it was initially. Since 1979, the revisions have averaged about 57,000, up or down, per month.

Most of the revisions since the recession have been upward. Economists say that's a good sign because it points to an underlying trend. An upward revision suggests that the late-responding companies added more jobs than the department had expected. It also implies that any corrections submitted by companies were also larger.

By contrast, during the recession, most of the revisions were downward. In 2008, the average revision was 73,000 lower.

And in 2009, some months were much worse: the department initially thought 598,000 jobs were cut in January of that year. That has since been revised to a whopping 821,000.

Some numbers that were initially eye-catching became more ho-hum.

For example, the August 2011 employment report was depressing. With the unemployment rate at 9 percent, the government said the struggling economy had added precisely zero jobs that month.

The zero figure had a political impact: Some Republicans dubbed President Barack Obama " President Zero."

The critics should have waited for the revisions: The department now estimates that 132,000 jobs were added in August 2011. That's still not healthy. But it's a lot better than zero.

April's gain of 165,000 jobs, meanwhile, is a solid increase.

But then it hasn't been revised yet.

(AP:NEW YORK) Are stocks worth buying now?

With the Dow Jones industrial average breaking through 15,000, it's natural to worry that stocks have gone up too far. But higher priced stocks aren't necessarily overpriced. They may still be a good deal if corporate earnings are rising fast, and you think that trend is likely to continue.

A solid April jobs report on Friday is a sign the economy is strengthening. That could lead to higher profits. What's more, many of the traditional threats to bull markets _ rising inflation and interest rates, a possible recession _ don't seem likely soon.

That said, stocks are no bargain. Buy them only if you're willing to ride the inevitable ups and downs and hold on for a while.

A look at some forces that could push stocks higher in the coming months:

_ HIGHER EARNINGS: Stock investors cheered when employers added 165,000 jobs in April and unemployment fell to a four-year low. More people working means more money flowing into the economy. That could help companies extend a remarkable streak of ever-higher profits.

Companies in the Standard and Poor's 500 index posted a record $102.83 earnings per share last year, or 17 percent higher than in 2007, when stocks were last near this level before the financial crisis.

How do stock prices compare with those earnings?

To answer that, experts look at what's called price-earnings ratios, or P/Es. Low P/Es signal that stocks are cheap relative to a company's earnings high ones signal they are expensive.

P/Es are calculated by dividing the price of each share by annual earnings per share. So a $100 stock of a company that earns $10 per share trades at 10 times. The lower the P/E, the cheaper the stock.

There are various P/Es. Some use past earnings and other future earnings. They give a mixed picture, but together suggest that stocks are reasonably priced.

If you look at earnings from the past year, the S& P 500 is trading at 15.6. That is slightly lower, or cheaper, than the 17.2 average for this P/E since World War II, according to S& P Capital IQ.

Using forecast earnings for the next 12 months, you get a P/E of 14.2, the same as the average over ten years, according to FactSet, a provider of financial data.

Another measure shows stocks are somewhat expensive, however.

Some investors think you should look at annual earnings averaged over 10 years instead of just one year. This eliminates any surge or fall due to changes in the business cycle. Dividing stock prices by a 10-year average of earnings yields a P/E of 23 times. That is higher, or more expensive, than the average 18.3 since WWII.

A word of warning: You shouldn't invest just by looking at P/Es. They are more guide than gospel. There have been long periods when stocks traded at lower or higher P/Es than the averages.

_ ECONOMIC EXPANSION: With Friday's job report, the odds for continued expansion got better. The economy has created an average of 208,000 jobs a month from November through April, above the 138,000 average for the previous six months.

The report follows news that the pace of economic growth picked up in the first three months of this year, home prices rose at the fastest pace in nearly seven years and automakers had their highest sales for April since the recession.

Tally it up, and financial analysts see earnings for the S& P 500 rising 12 percent in the last three months of the year, a big jump from an estimated 4.8 percent gain in the first three months.

There's plenty of reason for caution, though.

For starters, analysts tend to overestimate earnings several quarters in the future, and may be doing that again. Early last year, they expected a 13-percent jump in earnings in the last three months of the year. They got four percent instead.

And some experts believe Wall Street is underestimating how much the sweeping federal spending cuts that kicked in March 1 are going to slow the economy as government workers are furloughed and contractors lose business. If they're right, that could erode earnings.

Investors also have to keep on eye overseas. Half of revenues at big U.S. companies are abroad and some key economies are slowing or contracting. This can hit stocks hard, as General Electric shows.

Last month, when GE reported a 17 percent fall in revenue from Europe, its stock dropped four percent in a day. Many European countries are mired in recession, and the outlook has only gotten worse. Unemployment in the eurozone just rose to an all-time high of 12.1 percent.

China has put investors on edge, too. On April 15, news that it grew more slowly than expected in the first three month of this year helped push the Dow down 266 points, the biggest drop for the year.

Nervous yet?

One thing to keep in mind is that big, sustained drops in stocks _ ones that end bull markets _ are most often caused by U.S. recessions, and that doesn't appear likely soon.

Four of the past five bull markets ended as investors dumped stocks before the start of a recession. They sold stocks two months before the start of the Great Recession in December 2007 and a year before the March 2001 recession.

The U.S. economy has grown between 1-2.5 percent in the past three years. That's pitiful compared with the long-term average of 3 percent. Still, it's growth.

_ LOW INTEREST RATES: If recessions cause stocks to plummet, what causes recessions? In most cases it's the Federal Reserve raising short-term interest rates because it fears high inflation from an overheated economy. Fed hikes were the trigger for three of the past four recessions.

But today, the greater fear is too little inflation, not too much. The Fed's preferred measure of inflation rose only 1 percent in the year through March. The Fed's target is 2 percent.

What's more, the Fed has said it would keep key short-term rates nearly zero until unemployment falls to at least 6.5 percent. It is 7.5 percent now.

• It's jobs day in America.  According to the Bureau of Labor Statistics, U.S. employers added 165,000 nonfarm payrolls in April.  This was much higher than the 140,000 expected by economists.  Even better, the March number was revised up to 138,000 from 88,000, and the February number was revised up to 332,000 from 268,000.
• The unemployment rate slipped to 7.5% from 7.6%.  This comes as the labor force participation was unchanged at 63.3%.
• It's worth noting that the unemployment rate is still painfully high and that the pace of job creation could be higher. Still, today's news was encouraging.
• All of this was followed by two big milestones for the stock markets.  First, the S& P 500 crossed 1,600 for the first time ever right when the markets opened.  Less then an hour later, the Dow Jones Industrial Average briefly crossed 15,000 for the first time ever.
• So, what about the " sell in May and go away" rule? " We want to take the other side of this trade for multiple reasons," said JP Morgan's Tom Lee reiterating his bullishness.  Among other things, he noted that hedge funds were quite bearish already.  This wasn't the case going into the previous three Mays.  Lee also added that falling gas and commodity prices would act as a big stimulus to the economy.

- STI: +1.02% to 3402.4                                                                - SET: -0.54% to 1589.2
- JCI: -1.32% to 4994.05                                                              - KLCI: -0.24% to 1713.5
- HSCEI: -0.85% to 10825.4                                                  - Hang Seng: -0.30% to 22668.3
- Nikkei 225: -0.76% to 13694                                            - ASX200: +0.02% to 3402.9
- India NIFTY: +1.17% to 5999.4                                  - S& P500: +0.94% to 1597.6

MARKET OUTLOOK:
By Ng Weiwen, Macro Analyst

Sell (or rather take profit) in May, but please don’t go away. Markets have raced ahead of macroeconomic fundamentals and risk assets (such as equities) seem ripe for profit taking!

But don't fight the ECB. In addition to reducing main refinancing rate by 25bp (consistent with our expectations) and marginal lending rate by 50bps, ECB (or rather Draghi) was willing to do more and even kept an " open mind on negative deposit rates." Though, we caution that a further rate cut –even if materialise- may not actually boost the real economy especially when banks are still wary of lending to firms (particularly SMEs) based on the recent quarterly ECB bank survey.

Still, even if markets sell off in May, please don’t go away. Pull-back in equities offers an attractive opportunity to accumulate our OWs in US, China-HK and ASEAN economies such as ID, PH, TH and SG.

Consistent with our guidance (on this page yesterday), weaker-than-expected US (ADP employment, ISM & Markit manufacturing PMI) as well as Chinese (NBS & HSBC PMI) macro data weighed on Asian markets (HSCEI, HSI, Nikkei) on Thurs when most markets re-open after the Labour Day hols.

But don’t despair. While the HSI pulled back, the case for a bullish upturn in the HSI remains intact! Specifically, as long as the HSI remains above the 22k support level, the HSI is on track to challenge the 23k level next after breaking above the 22.5k key resistance level as well as 50dma.

The STI (one of our Over-weights) has remained resilient and even trudged higher while other markets have pulled back. This has been consistent with our guidance reiterated on this page.  STI cleared the 3400 psychological hurdle (albeit slightly). Looking ahead, STI is on track to challenge the 3485 peak as long as it remains above 3250 key support.

Looking ahead, do tread with caution. Key event risks on Fri and over the weekend:

(i) US Non-Farm Payrolls (3rd May, 10.30pm SGP time) –Recall we highlighted yesterday that the key takeaway from April FOMC statement was that the pace of asset purchases could be -either increased or decreased- depending on macro conditions (i.e. labour market as well as inflation expectations). Thus, all eyes will be on Apr NFP data. We reckon that the labour market is likely to be still sluggish. With ADP employment undershooting, NFP could come in weaker-than-expected. That does not bode well for consumer and business expenditure in 2q13, reinforcing our view that the US economy is undergoing a soft patch. But then the recent decline in initial jobless claims to a 5yr low provides a glimmer of hope.

(ii) Malaysia 13th GE (5th May) – OW Malaysia (KLCI) if BN wins a strong mandate. Beware of knee-jerk reaction when markets reopen on 6th May if BN register a weaker performance than the 12th GE and worse still fail to garner a simple majority.

(All equity indices mentioned in this note are tradeable with Phillip CFDs or ETFs)

Macro Data:

In the US, the labour market is healing (albeit slowly). Initial jobless claims slumped by 18k wk-on-wk to 324k (a 5yr low!) for the week ending Apr 27.  The 4-week moving average of claims declined by 16k, following the 4k contraction in the preceding week. This contrasts with the ADP private sector payrolls rose -at the slowest pace in 7 months- by 119,000 in April (as compared to gains of 131,000 in March). This weaker-than-expected ADP reading suggests that risks to the upcoming non-farm payrolls are to the downside. A sluggish labour market does not bode well for consumer and business expenditure in 2q13.  (by Ng Weiwen)

In Singapore, manufacturing activity continued to expand in April -albeit at a slower pace. Specifically, the headline PMI declined by 0.3pts m-m to 50.3. Similarly, the pace of expansion in the electronics cluster also eased with the electronics PMI falling 0.7pts m-m to 51.2 in Apr. Nonetheless, there are silver linings ahead. Recall a net weighted balance of 12% of manufacturers expect business conditions to be more favourable over the next six months (Apr-Sept).  In the electronics cluster, a net weighted balance of 18% of manufacturing firms also shared the same positive sentiment. (by Ng Weiwen)

In Euro zone, ECB announced to cut the benchmark refinancing rate by 25 bps to 0.5%, a record low, from prior earlier 0.75%. This measue takes the ECB closer to exhausting its conventional policy tools, raising the prospect of a negative deposit rate or new non-standard measures. Draghi said the ECB will continue to lend banks as much money as they need at least through mid-2014, extending the policy by more than a year. Separate reports show that the region’s manufacturing PMI is hovering at a low level, reporting 46.7 in Apr, compared to 46.5 reading in Mar, indicating a contraction in the region’s manufacturing sector. Germany’s manufacturing PMI rose slightly to 48.1, still a contraction, from the 47.9 reading in Mar. (by Roy Chen)

In China, HSBC manufacturing PMI fell to 50.4 in Apr, from the 51.6 reading in Mar, further adding to case that the recovery momentum is weakening. We expect the government to accelerate pace of economic reforms to bolster growth. (by Roy Chen)

In Taiwan, HSBC manufacturing PMI dropped to 50.7 in Apr from the 51.2 reading in Mar, indicating a slower expansion in the island’s manufacturing activities. (by Roy Chen)

In South Korea, HSBC manufacturing PMI rose to 52.6 in Apr, from 52.0 in Mar, indicating an unexpected accelerating expansion in the nation’s manufacturing sector, amid an uncertainty of geographical tension with North Korea and increasing competition that exports sector faces from a cheaper Japan product due to weak yen. (by Roy Chen)

Regional Market Focus

 

Singapore

• The benchmark STI close higher to 3,402.39 (+1.02%). The 2.2bn shares traded were worth S$1.9bn in value.
• DBS rallied strongly to close up 4.5% after reporting a strong set of numbers before market opening yesterday. However, our analyst believes that the positives are mostly priced in and downgraded his recommendation on the stock to Neutral.
• Top picks for the year are Pan United (Buy, TP: S$1.21), SIAEC (Buy, TP: S$6.10) & Boustead Singapore (Buy, TP: S$1.80). Pan United is a dominant supplier to the construction industry in Singapore and we expect the company to perform well given the strong pipeline of infrastructure work over the next few years. SIAEC is a key beneficiary of the aviation growth story in the region and offers excellent dividend yields. There are hidden gems within Boustead Singapore and we believe that the stock would continue to re-rate as the market appreciates the economic moat in its businesses.

• The composite SET index rallied to test a key 1600-point barrier in the morning session on Thu before the market reversed course to fall sharply in the afternoon trade amid rumors about the dismissal of BOT governor. The BOT said it has measures to tackle the strong baht if necessary.
• Short-term volatility is likely to persist in the Thai stock market today ahead of a three-day holiday weekend. The composite SET index is in its attempts to test a key psychological level of 1600 but it is unlikely to break through, in our view. Today we expect a trading range of 1576-1602 for the SET index. External sentiment looks bullish today after data showed better-than-expected US jobless claims data and ECB slashed its policy rate by 25 bps in line with market expectations, triggering a rebound in commodities, especially crude oil. In Thailand, the court’s rejection of an injunction against the bidding for the government’s Bt350bn water management projects may likely ease market concerns.   
• Key factors to watch include US non-farm payrolls data due out tonight and possible baht measures from BOT.
• Today we peg resistance for the composite SET index at 1600-1612 and support at 1583-1570.

• The Jakarta Composite Index (JCI) gained 26.848 points, or 0.53%, to finish at a new record high of 5,060.919 on Wednesday (01/05), after data released by the central bureau of statistics showed inflation cooled down in April, despite mostly lower closes in Asia stock markets after weaker than expected manufacturing data from China. The advance on Wednesday was supported by five of the 9 major sectors, led by Construction, Property and Real Estate sector with 2.97%-gain, Basic Industry sector with 1.04%-advance, and Financial sector with 0.85%-rise. The LQ45 index added 2.917 points, or 0.34%, to end at 860.037 with 18 of the 45 blue-chip constituents closed in green. From the economic front, inflation in Indonesia cooled down to 0.1% (mom) in April, or 5.57% year-on-year, lower than economists’ expectations. The decline was mainly due to decreased food prices. 165 shares climbed, 118 shares fell, and 190 shares remained unchanged Wednesday on the Indonesia Stock Exchange. Volume on the regular board reached 5.19 billion shares worth IDR 5.47 trillion. Foreign investors’ transactions accumulated to a net purchase of IDR 7.33 billion.
• The Jakarta Composite Index (JCI) will likely decline today, amidst negative tones in Asia after US stock markets plunged overnight on concerns the Federal Reserve may limit its stimulus measure depending on the country’s economic progress. We expect the JCI to trade lower today, with support and resistance each at 4,995 and 5,096.

• The Colombo bourse exhibited a slight slowdown during the day which in turn result the indices to conclude on a mixed note this was having closed within the green space for the past 4 trading days where both indices contentedly closed positive. The benchmark ASPI Index closed negative at 5,953.19 losing 14.43 points or 0.24% this was having recorded a positive closures for the past four trading days while accruing 95.19 points or 1.61%. However, the S& P SL20 Index closed on the positive side for the 6th successive trading day at 3,365.79 gaining 2.65 points or tiny 0.08%. The market capitalization as at the day’s closure stood at LKR 2.28Tn resulting in a year to date gain of 5.22% and the market PER and PBV stood at 16.08 and 2.19 respectively. The turnover for the day amassed to record LKR 876.33Mn indicating a gain of 3.52% against the previous trading day. Under the sectorial round-up Bank Finance & Insurance and Land & Property sectors stood out to be the top contributors for the day with subscriptions worth LKR 283.31Mn and LKR 279.65Mn respectively. Further the two sectors made a significant 64.24% contribution to the day’s aggregate turnover value. During the day, a total of 32.21Mn shares changed hands resulting in a decrease of 50.69% against the previous trading day. Price losers were ahead of the gainers while the loser to gainer ratio was being recorded at 138:70. Foreign participants were bullish during the day for the 3rd successive trading day resulting in a net foreign inflow of LKR 85.80Mn as a result of foreign purchases and sales worth LKR 204.04Mn and LKR 118.24Mn respectively. In regard to the local FOREX market, the USD closed the day at LKR 128.38/- selling and LKR 125.32/- buying.

• The Australian share market on Thursday closed 0.7 per cent lower, with concerns about global economic growth pulling down resources stocks. The benchmark S& P/ASX200 index was down 36.2 points or 0.70 per cent to 5,130.00 points.
• Today (03/05/13), the Australian market looks set to open higher following strong gains on Wall Street after an expected European Central Bank interest rate cut and a surprisingly good US jobless claims report.
• In economic news on Friday, the Australian Industry Group/Commonwealth Bank Australian Performance of Services Index (PSI) for month just ended is due to be released.
• In equities news, Wespac is expected to post half year results while Alumina has its annual general meeting scheduled.

• Local stocks declined. The HSI and HSCEI dropped 68 points and 92 points to 22706 and 10825 respectively.
• Due to the China April HSBC PMI missed market expectation, the HSI consolidated around 100 days SMA. Investors are suggested to maintain attention to the development of two Korea conflicts, which is a major uncertainty to the market recently, we suggest a cautious bullish view in short term.  
• Technically, the HSI is expected to gain a support from 21800 level, major resistance will be 22800 level.

Morning Note

Company Highlights

Ezra Holdings Limited announced that its subsea division, EMAS AMC, has been awarded a subsea engineering, procurement and offshore construction contract from Statoil for the Smrbukk South Extension’s project. The contract is valued at approximately US$75 million.  (Closing price: S$0.955, -%)

GuocoLand unveiled details of its first integrated mixed-use development in Singapore at the white site above Tanjong Pagar MRT station. Named Tanjong Pagar Centre, the 290-metre development will be Singapore’s tallest building.  The development sits along Choon Guan Street, Peck Seah Street and the new Wallich Street in the heart of Tanjong Pagar, which has been earmarked for development as Singapore’s next business and lifestyle hub in the Central Business District. It will also be the gateway to the future waterfront city that will replace the existing Tanjong Pagar ports. (Closing price: S$2.28, +0.885%)

Changjiang Fertilizer Holdings Limited provided profit guidance on the Group’s results for the first quarter (“Q1FY2013”) ended 31 March 2013. As a result of lower demand of our products, the Group expects to report significantly lower revenue and a loss in its unaudited first quarterly results of the Group for the three months ended 31 March 2013, as compared to the corresponding period in 2012.  (Closing price: S$-, -%)

Source: PhillipCapital Research - 03 May 2013

  We definitely view Initial Claims as a key indicator.  I have used the relationship between lower claims and a higher S& P 500 as an indicator for some time now (going back to 2009).  Back then I was among the few using it, today its use is commonplace.  We believed the relationship would fade as claims approached the pre-crisis constant of 300,000.  Since the market is at new highs, however, perhaps we were too quick to discount this indicator.  Nonetheless, now that we are within 10% of that pre-crisis constant, we still find it challenging to get too excited. 

And here's the chart.

There are a number of factors potentially influencing non-farm payrolls this month. First, the sequester likely reduced government jobs and weighed on private sector expansion. Although the government did most of its cost cutting through furloughs, we suspect there were also some outright job cuts. We are penciling in a decline of 25,000, but the risk is that this is too conservative.

Moreover, the private sector will likely be impacted. At a minimum, it likely reduced hiring in those industries most closely exposed to the government, such as defense contracting. We think it will ultimately result in outright job cuts, but this may occur with a lag, as suggested by the continued drop in initial jobless claims.

Second, there has been greater-than-normal seasonality in the past two months. March was particularly cold with snowfall in parts of the country, likely curbing economic activity. This would show up in retail and construction jobs in particular, which we think were both held back in March due to the weather.

There is another reason to expect a weak nonfarm payrolls number tomorrow: the April survey only covers four weeks of data, as opposed to the typical five-week window used to conduct the survey.

UBS economists are looking for a below-consensus print of 130,000 nonfarm payrolls, but they attribute it to the shortened time period covered by the April survey.

" The softness in headline  payrolls that we forecast reflects technical oddities rather than fundamental  weakening," says UBS economist Sam Coffin. " The relatively short interval between March and April payroll surveys,  with a four-week rather than five-week gap between them, has historically been  associated with April payrolls about 60,000 below the surrounding trend."

Société Générale economist Brian Jones acknowledges this effect in his preview of the Friday jobs report as well, but is decidedly more optimistic: he projects 175,000 new nonfarm payrolls in April and expects the unemployment rate to tick  down to 7.5%.

Capping a week of decidedly spotty data, we expect the Bureau of Labor Statistics (BLS) to report that the employment situation in the United States improved further in April. Although once again falling shy of the psychologically important 200,000 mark, nonfarm establishments probably added 175,000 net new workers last month, marginally eclipsing the 168,000 first-quarter average.

Estimated insured unemployment statistics, meanwhile, suggest that the civilian jobless rate remained on a downtrend during the month just passed, moving one tick lower to 71⁄ 2% –the lowest reading since the end of 2008. The remaining key establishment survey metrics are projected to be mixed in Friday’s report. Average hourly earnings likely quickened, rising by 0.2% following no change in the preceding month. The mean work span of private employees probably shortened to 34.5 hours.In his preview, Jones writes:

India cuts interest rate again to revive growth

By KAY JOHNSON
Associated Press

(AP:MUMBAI, India) India's central bank cut a key interest rate by a quarter percentage point to 7.25 percent on Friday to try to revive stalled economic growth but warned persistent inflation leaves little room for more aggressive rate cuts in the future.

Bank governor D. Subbarao cited decade-low GDP growth of 4.5 percent in the October-December quarter last year_ about half of the strong 9.2 percent growth of just two years ago in Asia's third-largest economy _ for the decision.

Friday's action was the third cut this year in the policy repo rate at which commercial banks can borrow from the Reserve Bank of India. The bank hopes that making money cheaper to borrow will encourage more spending and investment.

" Nevertheless, it is important to note that recent monetary policy action, by itself, cannot revive growth," Subbarao said, adding that the government must step up public investment in infrastructure, clear bottlenecks that are hampering large projects and address twin deficits both in government spending and the current account balance.

He also warned the bank had " little space for further monetary easing" because of inflation, noting that food prices in particular continue to rise at a steep rate.