Weak Domestic Data to Temper Markets?

The market will likely be far less focused on Spain and Greece today than has been the case lately. But it will be no less worried about the domestic economic scene following this morning’s disappointing labor market reports. The revision to the first quarter GDP report was broadly in-line with expectations, but there is hardly anything positive to write about the ADP and Jobless Claims readings.

For the second month in a row, the monthly jobs report from Automatic Data Processing (ADP - Snapshot Report) missed expectations. Since the ADP report tries to preview the monthly labor market report from the government’s Bureau of Labor Statistics (BLS), this morning’s disappointing read does not bode well for tomorrow’s BLS report.

For May, the ADP report is showing private-sector jobs of 133K,below expectations of 154K (according to Bloomberg). The tally for April was modestly revised downwards to 113K (from 119K). The expectation for private-sector jobs in Friday’s BLS report is for 164K.

This morning’s Initial Jobless Claims report is equally disappointing as it effectively reverses the gains of the last few weeks. Initial Jobless Claims jumped by 10K last week to 383K, getting back to April’s high. But since the prior week’s tally was revised upwards by 3K, the real jump is 13K this week. The four-week average, which smooths out the week-to-week volatility, increased by 3.8K to 374.5K. While the period for this week’s Jobless Claims data does not correspond with the survey period for tomorrow’s BLS report (it will come out in the June report), it nevertheless provides a less-than-reassuring read of the labor market.

While the two labor market reports today are without doubt negative, my overall take on this morning’s revision to the first quarter 2012 GDP report is broadly neutral. The ‘headline’ growth number came down as expected, but the negative revision was primarily due to the less significant drivers of inventories and government spending.

The only negative in the report was the modest downtick in consumer spending (from 2.9% to 2.7%), but even this lower level is still an improvement over what had in the fourth quarter of 2011 (2.1%). On the favorable side, business investment got revised up to the positive territory after the surprising negative read the first time around.