For the week ended September 2, 2011

Week in Review: Stagnant jobs situation troubles markets

• U.S. jobs stagnant, high unemployment persists
• German economy shows resilience
• U.S. blocks cell carrier merger
• Mortgage rates staying low

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The 10 yr note rate fell to 2.04% on the news, down 10 basis points from yesterday's close; mortgage prices jumped up 13/32 (.41 bp) on the initial reaction. The DJIA futures at 9:10 was down 153. At 9:30 the DJIA opened -135, the 10 yr note 2.04% -10 bp and mortgage prices +13/32 (.41 bp). This is great for mortgage rates to stay low : )

U.S. job growth fizzled in August, according to both the U.S. Department of Labor’s monthly nonfarm jobs report and the private sector jobs report. In a very disappointing setback, the Labor Department showed no change in payrolls in August, far below expectations. U.S. and European stocks fell sharply in response to the report. Overall, however, major global stock indices showed gains for the week, which marked the end of the worst month in a decade for the U.S. stock market. Chinese stocks had their worst week in three months, as economic and earnings growth slumped while inflation remained at its highest level in three years. In Europe, the Stoxx Europe 600 Index had its strongest weekly rally since July. The U.S. 10-year Treasury yield fell to 2.05% as recessionary fears rose. Oil prices fell below $86 a barrel.

It is employment day, therefore it is a stunning day. The August unemployment rate was unchanged at 9.1%; everyone stunned with the rest of the data. Non-farm jobs were expected up 60K on the most recent estimates, as reported there was no increase-zero; the estimate for non-farm private jobs was an increase of 75K, as reported +17K. In essence, no one hired anyone in August. In July non-farm jobs were originally reported up 117K, that was revised today to +85K; between July and June revisions 58K jobs were taken away from the two previous reports. August factory jobs declined by 3K. Average hourly earnings were expected up 0.2%, as reported -0.1%. Government jobs were down 17K. This has to be one of the worst and most shocking employment reports in years. Quotes of the day; Sec of Labor Solis; "we have done all we can"..."I am very optimistic about the future"..."people are waiting for Congress to act"......" incentives so far have worked"....."The President has a plan, we know what works"......"we have had no co-operation from the other side of the aisle"......???

After this employment report two things will dominate in the next week. What will Obama say in his speech next Thursday evening? And what will the Fed do when the FOMC meets on the 21st of Sept? As for Obama, so far in this economic downturn he has stuck out on about everything he has proposed; lots of rhetoric but no substance, shovel-ready jobs-no, $53B for rapid rail-a waste of money, and it goes on. Republicans no better with the way they performed on the debt ceiling debates-children! The Fed has only on option that might help, QE 2 didn't do anything except print more money and increase the Fed's balance sheet, QE 3. Another easing to ram the 10 yr note below 2.00% that will lower mortgage rates may help some but not much as long as there is no changes in lending polices; underwriting, appraisals, and increased costs. The Fed's likely move may be to lengthen the maturity of its balance sheet; selling shorter dated maturities and increasing the longer maturities with the purpose of pushing the 10 yr lower and lower mortgage rates....1.5% on the 10 yr? Not likely.

U.S. and global corporate news

U.S. auto sales raise
Sales rose in August for U.S. car manufacturers. Chrysler Group reported a 31% jump in sales, while General Motors and Nissan Motor each reported close to a 20% increase and Ford Motor had an 11% gain. Because of a slow recovery in production after the March tsunami, Japan’s Honda Motor and Toyota Motor reported decreases in U.S. sales of 24.3% and 12.7%, respectively.

U.S. Justice Department a hard sell on merger
The U.S. Department of Justice filed an antitrust lawsuit to block a proposed $39-billion merger between AT&T and T-Mobile USA, saying that it would substantially decrease competition, led to higher prices, and reduce product innovation.

Bombardier profit soars
Canada’s transportation giant Bombardier posted a 53% jump in second-quarter profit as revenue grew in both its aerospace and transportation divisions.

Sources: MFS research; The Wall Street Journal; The Wall Street Journal Online; Bloomberg News; Financial Times; Forbes.com; CNNMoney.com; msnbc.com.

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The week ahead

• The European Union reports its quarterly gross domestic product data on Tuesday, September 6.
• The U.S. Federal Reserve Board releases its "Beige Book," providing commentary on current economic conditions, on Wednesday, September 7.
• The U.S. Commerce Department releases its trade balance data for August on Thursday, September 8.
• The U.S. Labor Department publishes its weekly report on unemployment insurance claims on Thursday, September 8.