Friday, November 3, 2017

Markets hesitate after jobs data

Dow lost 16, advancers over decliners better than 4-3 & NAZ went up 9.  The MLP index was fractionally lower to the 267s & the REIT index lost 1+ to the 353s.  Junk bond funds were flattish & Treasuries hardly budged in price.  Oil inched up pennies in the 54s & gold lost 7 to 1271.

AMJ (Alerian MLP Index tracking fund)

CL=FCrude Oil54.72

GC=FGold   1,276.20

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US employers added the most workers in a year, rebounding from the Sep slowdown, as people resumed work after hurricanes Harvey & Irma, Labor Dept figures showed.  The jobless rate fell to the lowest since 2000 while wages stalled.  Payrolls rose 261K (est. 313K) after 18K advance; revisions added 90K to Aug-Sep figures, including turning Sep drop into a gain.  The unemployment rate, derived from a separate survey of households, fell to 4.1% (est. 4.2%) from 4.2%.  Average hourly earnings little changed M/M (est. 0.2% rise); up 2.4% Y/Y (est. 2.7%) after downwardly revised 2.8%.  The participation rate, or share of working-age people in the labor force, decreased to 62.7% from 63.1%, as size of workforce shrank.  The report indicates the fallout from the hurricanes, which had depressed the labor market the prior month, largely dissipated in Oct.  Jobs bounced back at restaurants and bars, which added 89K workers after a 98K drop in Sep.  Weather-related distortions may make it hard to read too much into the data until the end of the year. Still, economists expect a return to the underlying trend of steady, albeit slower, hiring that's still enough to keep pushing down the unemployment rate.  The Oct drop in the jobless rate was due to the number of unemployed workers falling by less than the number of employed.  Wages were a weak spot in Oct, though economists had penciled in a slowdown as low-paid workers at restaurants returned to their jobs, bringing down the average.  Even so, across the country, employers are reluctant to fire staff amid a shortage of qualified workers, while Americans are more upbeat about employment prospects.  That bodes well for consumer spending, the biggest part of the economy.  With payroll gains averaging about 162K over the past 3 months, the jobs report broadly provided more evidence the economy is approaching maximum employment, probably keeping Fed policy makers on track to raise interest rates in Dec for the 3rd time this year.

U.S. Adds 261,000 Jobs as Storm Effects Reverse; Wages Stall

America's service industries expanded in Oct at the fastest rate since 2005, indicating the biggest part of the economy is gathering strength, a survey from the Institute for Supply Management showed.  Non-manufacturing index rose to 60.1 (est. 58.5) from 59.8 (readings above 50 indicate growth).  The gauge of business activity climbed to a 6-month high of 62.2 from 61.3.  Measure of new orders little changed at 62.8 after 63 & the.employment gauge climbed to 57.5, highest since May, from 56.8.  The unexpected acceleration in the ISM gauge shows momentum was building at the start of Q4 for the industries that account for almost 90% of the economy and include sectors such as utilities, retailing, health care & construction.  The pickup stands in contrast to manufacturing, which grew at a slightly slower, albeit still robust, rate as reported by ISM earlier this week.  A measure of service-industry supplier delivery times remained at an almost 12-year high last month, indicating long lead times for materials were still an issue for companies.  In Sep, the gauge rose by the most since 1997 as energy & chemical producers around Houston were recovering from Hurricane Harvey.  That's also kept prices elevated.  Meanwhile, ISM's non-manufacturing export index reached a 6-month high, underscoring a general pickup in global demand & the auge of order backlogs fell to 53.5 from 56; export orders measure climbed to 60 from 56, the biggest monthly advance since Mar.

Growth in U.S. Service Industries Is Strongest Since Mid-2005

The House Ways & Means Committee released the major talking points of its long-awaited tax plan yesterday, called the Tax Cuts & Jobs Act, which adds in a 4th tax bracket on high-income earners & leaves retirement plans largely untouched.  “The Tax Cuts and Jobs Act will deliver real relief for people in the middle [and] people who are also striving to get there,” House Speaker Paul Ryan said.  The GOP predicts that if its bill is enacted, the average middle-income family of four would receive a tax cut worth $1182.  While the legislation will be up for amendments, here are some of the official details already set forth.  The GOP wants to add in a 4th tax bracket, acting as a surtax on the country's highest earners.  The tax brackets will be set at 12%, 25%, 35% & 39.6%.  The highest rate is in line with the current top tier tax rate, but kicks in at an income level of $1M for married couples currently the top rate applies to incomes above $470K.  For household income levels, the 0% rate applies to those with incomes up to $24K, the 12% rate up to $90K, 25% up to $260K, 35% up to $1M.  For individuals, the 12% rate applies to incomes up to $45,000, the 25% rate up to $200K, 35% up to $500K & the highest rate to incomes in excess of $500K.  While initially the Trump administration called for a full repeal of the deduction for state & local taxes (SALT), the finalized bill indicates Reps settled for a modification.  The GOP plans to allow state & local property tax deductions up to $10K.  Other state & local deductions, including income & sales tax deductions for individuals, will be eliminated.  Despite discussions to reduce “catch up” contribution for those over the age of 50 from $6K to $2400, the current tax plan did not change the retirement savings plans used by more than 50M Americans.  As expected, Reps stuck with their aim of slashing the corp tax rate by 15 percentage points to 20% & they want to make it permanent.  It remains to be determined whether the reduction to the corporate tax rate will be gradually phased in over the course of a few years or whether it will be an immediate, one-time cut.  The GOP aims to tax repatriated overseas profits at a rate of 5% for illiquid assets & 12% for cash, so long as the company brings back those profits within 8 years.  The GOP's plan calls for a reduction in the “pass-through” rate on business income to 25%.

Trump’s tax plan: The major changes

The jobs tax data was not decisive following distortions from the storms hitting southern US.  Tax legislation remains the hot topic for traders, especially with much not known.  The current plan is hazy in spots & everything is subject to change.  Additionally, the Reps are already squabbling about this & that.  Getting a tax plan adopted by year's end is looking doubtful, a solid negative for stocks g forward.

Dow Jones Industrials


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