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Week in Review: Weaker US Payrolls Add to Global Worries

For the week ended 2 October 2015

  • US adds just 142,000 jobs in September
  • US manufacturing growth slows
  • China’s manufacturing softens
  • Eurozone prices drop, confidence still strong
  • Debt doubts haunt Glencore

A disappointing monthly jobs report indicated surprising softness in the US economy, adding to concerns about global weakness. Stocks tumbled and gold futures jumped on the news, while the 10-year US Treasury yield fell to 1.90% before rebounding.

For the week, global stock indices were volatile, as nervous investors assessed global growth prospects in the face of weaker signals from two of the world’s largest economies. On Friday, crude oil traded near $44 and $48 per barrel for US West Texas International and Brent, respectively.

Wednesday marked the end of the third quarter, the worst for US stocks in four years, with the S&P 500 Index declining 6.9%. But international stocks fared worse: The MSCI World Index fell 9.3% while the J.P. Morgan Government Bond Index–Emerging Markets (JPM GBI–EM) Global Diversified Index tumbled 12.0%.

US and global economic news

US adds 142,000 jobs in September
Nonfarm payrolls rose 142,000 in September, while July and August’s payroll increases were revised down. The average monthly US employment gain from July to September was 167,000, far below the 18-month pace of more than 200,000. The jobless rate remained at 5.1% as labor force participation fell to 62.4%, the lowest since the late 1970s. Average hourly earnings fell by one cent to $25.09, 2.2% higher than a year ago.

US manufacturing growth eases
The Institute for Supply Management (ISM) index of national factory activity fell from 51.1 in August to 50.2 in September, its slowest pace in more than two years. New orders, employment and imports all fell to just above 50, the threshold between growth and contraction. The Chicago purchasing managers’ index (PMI) dropped from 54.4 in August to 48.7 in September as production and new orders fell sharply.

US investment plans weaken
New orders for nonmilitary capital goods excluding aircraft, a key gauge of business investment plans, fell 0.8% in August, below a previously reported 0.2%. New orders for overall factory goods fell 1.7%.

Mixed signals on US housing
The National Association of Realtors’ Pending Home Sales Index was down 1.4% in August but up 6.1% from a year earlier. The S&P/Case-Shiller Home Price Index rose 4.7% in the 12 months ended in July, a slight rise from June.

US goods exports tumble
Exports of US goods fell a seasonally adjusted 3.2% to $123.1 billion in August while imports rose 2.2% to $190.3 billion. The resulting goods trade deficit grew 13.6% to $67.2 billion, according to the US Department of Commerce, which will release its full report on trade on 6 October.

Consumer spending rises along with confidence
US consumers spent another 0.4% more in August, after monthly gains of 0.4% in July and 0.3% in June. The price index for personal consumption expenditures, the US Federal Reserve’s preferred inflation gauge, was flat from July to August and up only 0.3% from a year earlier. The Conference Board’s index of consumer attitudes rose from 101.3 in August to 103.0 in September, above the expected 96.1.

US auto sales strong
The “big three” US automakers all reported strong sales gains in September, with General Motors up 12%, Ford Motor up 23% and Fiat Chrysler up14%. Sales of SUVs and light trucks benefited from inexpensive gasoline and low interest rates.

Weekly US jobless claims climb to 277,000
Initial jobless claims rose 10,000 to 277,000 for the week ended 26 September. The four-week moving average fell 1,000 to 270,750. Continuing claims fell 53,000 to a 15-year low of 2.19 million for the week ended 19 September.

China’s manufacturing output weakens
China’s September manufacturing data continued to show contraction. The government’s manufacturing PMI nudged up to 49.8 in September, while the Markit Caixin PMI slipped by 0.1 to 47.2 in September. Industrial profits fell 8.8% in August from a year earlier, the largest drop in four years.

Eurozone dips into deflation but confidence improves
Consumer prices in the eurozone fell 0.1% in September, driven down by the 8.9% drop in energy prices from a year earlier. Markit’s final manufacturing PMI for the region fell from 52.3 in August to 52.0 in September. Nevertheless, eurozone gauges of confidence rose in September, with the business climate index climbing to 0.34, while the economic sentiment indicator, merging business and consumer surveys, rose to 105.6.

US and global corporate news

Glencore shares jolted by debt, commodity price concerns
Concerns about its heavy debt load and the impact of depressed commodity prices sent Glencore’s shares sharply lower. However, they rebounded strongly after company management said its balance sheet remained strong. The Swiss mining and trading firm has lost more than 70% of its stock value this year.

Natural-gas pipeline merger worth $32.6 billion
Energy Transfer Equity LP will acquire Williams Companies. in a $32.6 billion deal. Williams had rejected a $48 billion offer in June before shares of energy companies tumbled, resulting in a much lower price tag. The merged firm will have a combined network of more than 100,000 miles of oil and gas pipelines across North America.

Aluminum giant Alcoa to split
Alcoa plans to split into two firms, with the raw aluminum business retaining the Alcoa name and continuing bauxite mining, alumina refining and aluminum production, while a separate firm for the profitable downstream parts group will do business in rolled products, engineered products and solutions, transportation and construction. Raw aluminum prices have fallen more than 40% since 2011.

The week ahead

  • The European Union composite PMI is reported on Monday, 5 October.
  • China’s composite PMI is released on Wednesday, 7 October.
  • The Bank of England makes a monetary policy announcement on Thursday, 8 October.
  • The minutes of the US Federal Reserve’s September meeting are released on Thursday, 8 October.
  • Alcoa reports quarterly earnings on Thursday, 8 October.

Stay focused and diversified
In any market environment, we strongly believe that investors should stay diversified across a variety of asset classes. By working closely with your financial advisor, you can help ensure that your portfolio is properly diversified and that your financial plan supports your long-term goals, time horizon and tolerance for risk. Diversification does not guarantee a profit or protect against loss.

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Sources: MFS research; The Wall Street Journal; The Wall Street Journal Online; Bloomberg News; Financial Times;;;

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