December 1, 2023

Stocks Lower After Disappointing Data

Stocks on Wall Street were lower on Wednesday after weak readings on service-sector growth and private-sector employment.

The Standard Poor’s 500-stock index was down 0.1 percent, the Dow Jones industrial average was 0.7 percent lower, and the Nasdaq composite index slid 1.1 percent in afternoon trading. The S.P. 500 had been near its record level of 1,576.09 points for the last several sessions.

Investors had expected market movements to be modest ahead of the release on Friday of the closely watched nonfarm payrolls report for March, with few major trading catalysts before then.

The latest ADP National Employment Report showed 158,000 private sector jobs were added in March, and the Institute for Supply Management said its services index fell to 54.4 last month.

“People aren’t worried about employment compared to the overall macro outlook, and they have a general idea that the economy is improving,” said Wayne Kaufman, chief market analyst at John Thomas Financial in New York. “That should allow us to hold firm.”

While data has largely been positive and helped to propel the equity market in the first quarter, a few disappointments have made investors cautious. “Some data has indicated softening, but things should remain quiet until Friday,” Mr. Kaufman said.

In company news, Zynga surged 9 percent said it would begin offering poker and casino-style games in Britain in partnership with Bwin. party Digital Entertainment.

ConAgra Foods fell 0.7 percent. The company reported third-quarter earnings that fell 57 percent even as revenue grew.

Monsanto rose 1.6 percent after reporting earnings that beat expectations and raising its full-year profit forecast.

Verizon Communications ruled out a full takeover of Vodafone, turning the focus yet again to whether the two telecommunication giants can do a deal over their Verizon Wireless joint venture. New York-listed shares of Vodafone fell 2.9 percent, while Verizon was off 0.4 percent.

Issues in the euro zone will continue to be in focus a day after Cyprus concluded a bailout deal. The plan, which still requires ratification, would mean the country receives a 10 billion euro loan, and that it has until 2018 to carry out measures to shore up its finances. The country’s finance minister resigned after concluding the deal.

While investors have tended to use any market decline as a buying opportunity, the situation in Cyprus has been a major source of market uncertainty in recent weeks. European markets were flat to slightly lower in afternoon trading Wednesday.

Wall Street stocks rose on Tuesday, lifted by health care stocks, after a government decision on payment rates. Strong factory orders data also added to the positive tone.

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I.S.M. Reports Slower Growth at Services Companies

WASHINGTON (AP) — Growth at service companies slowed slightly in January as a result of weaker new orders and slower business activity. But hiring improved, providing a bright sign for the economy.

The Institute for Supply Management said Tuesday that its index of nonmanufacturing activity dipped to 55.2 in January. That was down from 55.7 in December, which was the highest level in nearly a year. Any reading above 50 indicates expansion.

The modest decline from December’s strong reading suggests the industry was not greatly hampered by an increase in Social Security taxes that reduced take-home pay for most Americans.

Companies did not single out the rise in payroll taxes in the survey, Anthony S. Nieves, chairman of the I.S.M.’s survey committee, said in a conference call with reporters.

The report measures growth in industries that cover 90 percent of the work force, including retailing, construction, health care and financial services.

Over all, economists were encouraged by the steady reading in the services index, as well as a sharp jump in the institute’s January manufacturing index released last week. The reports suggest economic growth is rebounding in the quarter from January to March, after shrinking from October to December.

A gauge of hiring in the services report rose to its highest level in nearly seven years. That was consistent with the solid job gains reported by retailers, construction companies and other service firms in the government’s January employment report, released last week.

Service and construction companies have added an average of nearly 195,000 jobs a month in the last three months. The increase in the employment gauge suggests the solid hiring will continue.

Paul Dales, an economist at Capital Economics, attributed the dip in the overall I.S.M. index to the Social Security tax increase. “But this blow has been small and cushioned by stronger demand in other sectors, namely construction,” he said.

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Surveys Point to Slowdowns in Euro Zone and China

LONDON — While most investor attention was focused on a meeting of European leaders attempting to resolve the Greek debt crisis, survey data released Thursday suggested a backdrop of stagnating economic activity in the euro zone and softening output in China.

The composite euro zone purchasing managers’ indexes, known as P.M.I.s and complied by Markit, showed growth in the euro area’s manufacturing and service sectors stalled in July, with the composite index showing its lowest reading in 23 months.

In China, a closely watched survey of purchasing managers produced the lowest level in 28 months, according to HSBC, which published the index.

That suggested that a series of regulatory and policy measures is having the desired effect of cooling the red-hot Chinese economy.

The euro zone composite P.M.I. fell to 50.8 in July from 53.3 in June, Markit said. The consensus forecast among economists had been for a more modest decline to 52.6. The drop in the P.M.I.s was broad, with the services index slowing to 51.4 from 53.7 and manufacturing falling to 50.4 from 52.

The indexes provide a fairly good indication of where quarterly economic growth rates are heading, according to analysts.

Nick Kounis, head of economic research at ABN Amro in Amsterdam, said higher oil prices, budget cuts and the global economic slowdown having been dragging on growth in Europe.

“More recently,” he added, “it’s possible that business confidence also took a blow because of the escalating sovereign debt crisis.”

He said the P.M.I.’s current levels were consistent with a slowdown in euro area growth in the third quarter to flat or up just 0.1 percent from the previous quarter. The region posted a preliminary growth rate during the second quarter of 0.2 percent after a gain of 0.8 percent in the first three months.

“The slowdown in euro zone G.D.P. growth to near-stagnation levels is another warning shot to Europe’s leaders about the high stakes at today’s summit,” Mr. Kounis said. “It might not take too much of a shock to push the economy into recession from these levels.”

The releases of both sets of data came before European leaders reached an agreement Thursday in Brussels on new aid for Greece.

In China, the vast manufacturing sector appears to have contracted in July for the first time in a year, according to the closely watched HSBC survey.

The initial results of the poll of purchasing managers produced a reading of 48.9 in July, the lowest level in 28 months and down from 50.1 in June. The final reading will be released Aug. 1.

Readings below 50 represent contraction, so the slide below that level indicated that manufacturers had seen business slow markedly over the past few months, based on a combination of feeble global demand and tighter conditions at home.

For the past year and a half, Chinese policy makers have used a wide variety of tools to rein in booming growth and limit the rising prices that have accompanied it. Formerly free-flowing bank loans have become harder to obtain, for example, as banks were instructed to lend less.

Those measures have slowed the economy, but at a gradual pace that leaves room for still more tightening by Beijing in the coming months, most analysts say.

A P.M.I. reading of below 50 does not imply a “hard landing” for China, said Qu Hongbin, chief China economist at HSBC.

Industrial growth is likely to continue to decelerate in the coming months as tightening measures filter through, Mr. Qu said, but “resilient consumer spending and continued investment in ongoing mass infrastructure projects should support a G.D.P. growth rate of almost 9 percent for the rest of this year.”

The International Monetary Fund echoed that sentiment in its latest assessment of the Chinese economy, published Thursday, noting that “China’s near-term growth prospects continue to be vigorous and are increasingly self-sustained, underpinned by structural adjustment.”

“Wage and employment increases have fueled consumption, the expansion in infrastructure and real estate construction has driven investment upward, and net exports are once again contributing positively to economic growth,” the fund said.

The I.M.F. projects 9.6 percent economic growth for China this year, and 9.5 percent expansion for 2012, in line with many other forecasts. That is down from 10.3 percent last year, but well above what developed nations like the United States are managing.

But an aging population and gradually shrinking labor force risks fanning inflation in the longer term, the I.M.F. said, while low interest rates and a lack of places for savers to invest their cash mean there is a lingering risk of bubbles in the already hot property sector.

Those factors could lead to potential “significant risks” to financial and macroeconomic stability in China, the fund said, and it urged Beijing to address the challenges by raising interest rates further and allowing the renminbi to strengthen.

Beijing has so far relied heavily on so-called reserve requirement ratios for lenders as a policy tool. Successive increases in the ratio since early last year have gradually restricted the amount of money banks have been able to lend. Interest rate increases came into the policy mix relatively late: The central bank began nudging rates up again in October 2010.

Bettina Wassener reported from Hong Kong.

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Employers Added 179,000 Jobs in April, ADP Says

Private employers in the United States added 179,000 jobs in April, while the pace of growth in the services sector unexpectedly eased in April to its lowest level since August 2010, according to economic reports released on Wednesday.

In the jobs report, the ADP Employer Services report fell short of economists’ expectations for a gain of 198,000, according to a Reuters survey. March private payrolls were revised up to an increase of 207,000 from a previously reported 201,000.

The figures come ahead of the government’s much more comprehensive labor market report on Friday, which includes both public and private sector employment.

“Certainly people will look into this and be pessimistic or cautious about Friday’s numbers,” said Tim Ghriskey, chief investment officer of Solaris Asset Management in Bedford Hills, N.Y.

“The breakdown from the release did show some strength in small and medium businesses. The weakness was actually in large businesses, and that is unusual. But certainly optimistic for a broader strengthening in employment.”

Friday’s report is expected to show a rise in overall nonfarm payrolls of 186,000 in April, based on a Reuters poll of analysts, and a gain of 200,000 in private payrolls.

Economists often refer to the ADP report to fine-tune their expectations for the payrolls numbers, though it is not always accurate in predicting the outcome. The report is jointly developed with Macroeconomic Advisers.

In other report, the Institute for Supply Management said its services index fell to 52.8 last month, from 57.3 in March. That was well below economists’ forecasts for 57.4, according to a Reuters survey.

A reading above 50 indicates expansion in the sector.

The report’s new-orders index tumbled to its lowest level since December 2009, falling to 52.7, from 64.1. The employment gauge dipped to 51.9, from 53.7.

“It’s a weak indication not only in the headline figure, but also in the worst possible place: the orders component,” said Pierre Ellis, senior economist at Decision Economics. “This is a sector that is supposed to be relatively smooth in terms of growth so if it turns out to be more than transitory, this would be a clear indication of destabilization in the economy.”

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