Today: Employment hopes high. Eurozone retailers’ hopes low. Italy hopeful. Politics hopeless. Earnings watch.
Private Payrolls Increased by 230,000 Jobs in October, ADP Says Private businesses continued to add workers at a healthy clip last month, a positive sign for year-end economic growth, according to an employment survey.
Earlier Wednesday, TrimTabs Investment Research said it estimated the U.S. economy added 314,000 new jobs in October. TrimTabs’ estimates are based on analysis of daily income tax deposits to the U.S. Treasury.
According to ADP, firms employing between one and 49 workers added 102,000 new workers last month. Medium-size businesses with payrolls of 50-499 workers increased payrolls by 122,000 employees. Large firms, businesses with 500 or more employees, hired just 5,000 more workers.
Service-sector payrolls increased by 181,000 workers in October. Manufacturing added 15,000 jobs. Construction payrolls increased by 28,000 slots, a large hiring gain for that sector.
Service Sector, Hiring Continue Expansion The U.S. service sector remained in expansion in October, though less than in September, and hiring hit a cycle-high, according to the Institute for Supply Management.
The ISM’s nonmanufacturing purchasing managers index slowed to 57.1 last month from 58.6 in September. (…) Economists said the slowing in services shows the economy is expanding but not as fast in the fourth quarter as it did in the second and third quarters. (…)
The employment index increased to 59.6 from 58.5. October’s job reading is the highest since August 2005, before the last recession. (…)
The ISM’s new orders index dipped to 59.1 from 61.0 in September. The ISM business activity/production index fell to a still high 60.0 from 62.9. The ISM inventory index fell to 49.5 in October from 52.0. The prices index fell to 52.1 from 55.2 in September.
See also MARKIT U.S. SERVICES PMI EASES TO 57.1
German Factory Orders Point to Third-Quarter Economic Contraction
Factory orders rose 0.8% in September from August, the German Economics Ministry said Thursday—far short of the 2.0% gain expected in a survey of economists conducted by The Wall Street Journal last week. However, August’s figure was revised to show a less pronounced decline.
The report suggests that industrial production for September, due for release Friday, will show a 0.8% drop for the third quarter compared with the second, said BNP Paribas economist Evelyn Herrmann.
As a result, a contraction in gross domestic product of about 0.1% on the quarter between July and September is “likely,” she said. German GDP fell 0.2% on a quarterly basis, or about 0.6% annualized, during the second quarter after a strong start to 2014. (…)
“It will be difficult for the German economy in the winter months,” said Thomas Gitzel, chief economist at VP Bank in Liechtenstein. “Fears of recession are, however, overblown,” he said, adding that the German economy will benefit from the weakening euro. He expects “it will again look better for the German economy in the spring months” of 2015.(…)
Details from Thursday’s report showed that growth momentum in orders came from abroad, with foreign orders growing 3.7% on the month. Domestic orders declined by 2.8%. The Economics Ministry raised the figures for August, saying now that total orders declined by only 4.2% instead of the 5.7% plunge originally reported.
EUROZONE RETAIL PMI IN SOLID CONTRACTION
Latest PMI® figures from Markit showed a drop in eurozone retail sales in October. The rate of decline was solid, albeit slower than in the previous month as Germany recorded marginal growth and the downturn in France eased notably. Italy was the weakest performer of the big-three at the start of the fourth quarter, registering a marked and accelerated decrease in retail sales.
The headline Markit Eurozone Retail PMI – which tracks month-on-month changes in like-for-like retail sales – signalled a decrease in sales for the fourth straight month in October. At 47.0, up from September’s 44.8, the index was at its highest level in three months, but nevertheless indicative of a solid rate of contraction. (…)
Employment in the eurozone retail sector fell for the first time in five months in October, reflective of staff shedding in France and Italy, as well as a notable slowdown in the pace of job creation in Germany. The overall drop in employment in the currency bloc was modest.
Retailers’ orders of goods for resale decreased in October, in line with the trend in five of the past six months – June saw no change. The rate of decline in buying levels was the slowest since July, however. Stock levels meanwhile decreased fractionally, thereby ending a ten-month sequence of accumulation.
Falling orders of resale items among retailers continued to subdue suppliers’ pricing power, with wholesale price inflation remaining close to September’s 57-month low. In Italy and Germany purchase prices rose at the slowest rates for 67 and 54 months respectively. A modest rise in purchase prices in France followed reductions in the previous two months.
OECD Urges ECB to Provide More Stimulus The European Central Bank should engage in an expanded program of asset purchases, or risk a prolonged period of economic stagnation and a slide into deflation across the eurozone, the OECDevelopment said.
(…) “Overall, the euro area is grinding to a standstill and poses a major risk to world growth as unemployment remains high and inflation is persistently far from target,” wrote Catherine Mann, the OECD’s newly arrived chief economist.
The OECD expects the eurozone economy to grow by just 1.1% in 2015 and 1.7% in 2016, but only if governments slow their efforts to cut budget deficits, and the ECB provides further stimulus. Without that support, and fundamental overhauls to the way their economies work in countries such as France and Italy, “the growth performance of the euro area will be much weaker,” the OECD said.
“In the euro area and for the global economy as well, intensified monetary support is critical to growth, otherwise ever lower inflation—even deflation—may be down the track,” Ms. Mann wrote. (…)
ECB policy makers have been reluctant to buy government debt. The policy is deeply unpopular in Germany, where it stirs fears of central banks printing money to finance runaway public spending.
Ms. Mann said that if those reservations were to hold back needed efforts to boost growth, the eurozone’s economy could be permanently weakened, citing very high levels of youth unemployment that indicate the currency area is “losing a generation.” (…)
Italy has ‘atomic bomb’ to revive economy, says Renzi aide
Yoram Gutgeld pulls out a white sheet of paper and starts scribbling, true to his roots as a management consultant. It is just after dusk on the first floor of Palazzo Chigi, the seat of the Italian government in central Rome, and the Israeli-born economist wants to illustrate the size of the tax cuts in Italy’s budget.
A worker earning €20,000 a year would see net pay rise from €1,200 to €1,350 per month, while the cost to the employer would drop from €2,200 to about €1,650, Mr Gutgeld jots down.
“This is a massive reduction in taxes primarily on low to middle range wages. I think you will be hard pressed to find any country in Europe that has done something similar,” Mr Gutgeld says. “This is an atomic bomb,” he adds. (…)
This is Italy’s retail PMI since 2004. 
PBOC Pumps Money to Banks China’s central bank vowed to lower funding costs for corporate borrowers amid increasing pressure on the nation’s slowing economy.
In a report published Thursday on third-quarter monetary policy, the People’s Bank of China also confirmed it had already conducted two rounds of liquidity injections into the country’s banking system in September and October totaling 769.5 billion yuan ($125.9 billion) in a bid to guide interest rates lower and support economic growth.
The central bank said it had pumped the funds with a tenor of 3 months at an interest rate of 3.5% into the country’s state, midsize and smaller lenders, according to the report on the central bank’s website. (…)
The PBOC said in the report that the weighted average lending rate for nonfinancial firms stood at 6.97% in September, down 0.12 percentage point from a month earlier and down 0.23 percentage point from the end of last year. (…)
The central bank also said it would offer support for “reasonable spending” on housing though it vowed to crack down on real-estate speculation. It also promised to step up support for the rail and shipping sectors. In the past week, the government has approved more than 400 billion yuan of investments in railway projects.
China on Thursday also unveiled a series of measures to encourage imports, including more bank credits and tax support.
It also said it would maintain its prudent monetary policy and look to market ways to solve problems with expanding debts of local governments around the country.
The central bank said it would speed up the plan of bank deposit insurance scheme which is seen as a necessary cushion as China moves to liberalize interest rates. China currently has no deposit insurance system and interest-rate liberalization is widely seen as creating new financial risks for small banks as they compete with big state banks to attract deposits.
World Food Prices Drop a 7th Month in Longest Slide Since 2009
An index of 55 food items fell 0.2 percent month-on-month to 192.3 points, the lowest since August 2010, the UN’s Rome-based Food & Agriculture Organization wrote in an online report today. The index is stabilizing, it said.
Food prices have been falling amid an outlook for bigger grain crops, and rising milk output as well as a recovery in U.S. pork production. That is helping slow global inflation, already aided by a slump in oil prices, with Goldman Sachs forecasting world annual average consumer prices will rise 3.3 percent next year from 3.5 percent in 2014.
The food-price index declined 6.9 percent year on year, falling from the year-earlier period for a 16th month, the longest such slide since 2000. (…)
EARNINGS WATCH
From ValueWalk:
As third quarter earnings release period comes to an end, 84% of the S&P 500 (INDEXSP:.INX) have reported earnings (…). on a year over year basis, S&P 500 earnings per share grew 10% and sales rose 4%. Margin levels continue to hover around 9.3%, but analyst estimates imply further gains, up to 9.9% in 2015 as estimated by Goldman Sachs Group Inc.
However, looking at revisions to 2015 full year estimates, we notice a drop in expectations. Upon further investigation, analysts continue to post negative revisions to the energy sector, which has been weighing on S&P 500 earnings estimates. As a sector, energy is forecasted to see earnings per share fall 11.1% next year, sales to fall 4.8% and margins to fall 55 basis points, the largest and most negative revision of all sectors in the S&P 500. (…)
Overall, looking forward, analysts at Goldman Sachs are predicting continued earnings per share growth for the S&P 500 ex-energy. Fourth quarter 2014 earnings per share for the S&P 500 are forecasted to reach $30.53 and margins look to continue their uptrend into next year. (…) In the last week alone, the energy sector saw a 3% negative revision to 2015 earnings per share and further revisions are estimated to push earnings estimates lower. (…)
SPEAKING OF OIL, HERE’S A CONTRARIAN MOVE
U.S. oil CEO Hamm goes out on a limb, scraps hedges
Harold Hamm, the chief executive of North Dakota oil producer Continental Resources Inc (CLR.N), has stunned a bearish crude market by scrapping all of the company’s hedges – a bold bet that prices will recover soon after sliding some 25 percent.
In so doing, Hamm, who last month called OPEC a “toothless tiger”, appears to be bracing for a price war with the world’s biggest exporter, Saudi Arabia. The OPEC-leader and other key members of the oil exporter group have so far shown no real sign of moving to cut production to lift prices.
Conventional wisdom among oil analysts is that Saudi Arabia, frustrated by a global supply glut caused by soaring output in the United States, is prepared to let prices fall to squeeze U.S. shale oil producers out of the market.
“We have elected to monetize nearly all of our outstanding oil hedges, allowing us to fully participate in what we anticipate will be an oil price recovery,” Hamm said in a statement on Wednesday when the company posted third-quarter results. Continental will hold a conference call on its quarterly earnings with analysts on Thursday.
The move to sell all crude oil hedge positions from October through 2016 netted the oil company a $433 million one-time gain during the most recent quarter.
“We view the recent downdraft in oil prices as unsustainable given the lack of fundamental change in supply and demand,” Hamm said. (…)
WA PO STUFF:
Obama: ‘I hear you’
President vows to work with Republicans
Obama seems numb to this latest ‘shellacking’ of Democrats
Yet when Obama fielded questions for an hour Wednesday afternoon, he spoke as if Tuesday had been but a minor irritation. He announced no changes in staff or policy, acknowledged no fault or error and expressed no contrition or regret. Though he had called Democrats’ 2010 losses a “shellacking,” he declined even to label Tuesday’s results.
Obama declared that he would continue with plans for executive orders to expand legal status to undocumented immigrants — even though, minutes before Obama’s news conference, Senate Republican leader Mitch McConnell said that would be “like waving a red flag in front of a bull.” Obama repeated a familiar list of priorities — a minimum-wage hike, infrastructure and education spending, climate-change action — and brushed off various Republican proposals.