Productivity soars as jobless claims fall, but the focus is on the jobs report due out Friday. Ahead of this key report, traders have gotten several releases on the employment market including the ADP Employment report and the Challenger Job-Cut report. Retailers are also in the spotlight today with the nation's chain stores reporting same-store sales results for October.

Retailers are an important part of the economy, especially as we head into the holidays. This being the case, traders are interested in same-store sales results and the outlook these stores have for the holiday shopping season. Results have been mixed when comparing them to expectations with just 11 of 24 stores beating estimates. Of these 24 stores, only 11 saw positive same-store sales during the month. Target (TGT), which gets the attention because it is the closest competitor to Wal-Mart (WMT), saw sales fall 0.1 percent. The largest decline in same-store sales came from Abercrombie (ANF) at a decline of 15 percent. TJX (TJX) saw the best gains with same-store sales up 10.0 percent. Overall, teen retailers were weak with this group showing a very high unemployment rate.

Retail sales are directly related to the jobs market and this is where the focus lies. On Wednesday, the ADP Employment report showed a drop of 203,000 private payrolls in October. This was better than the 227,000 jobs lost in September and September's figure was revised up from the initial reading of 254,000 jobs lost. This particular report does not include government jobs. This report hasn't always tracked well with the Labor Department report, but at least it is showing improvement.

The ISM Non-Mfg. Index was a bit disappointing in October with the index coming in at 50.6 from 50.9 in September. Estimates were for a reading of 51.6, but a reading above 50.0 is considered a state of expansion. Unlike its cousin in the manufacturing sector, the employment component fell more than 3 points to 41.1. The ISM Mfg. Survey showed a reading above 50 in employment for the first time in many months.

Job cut announcements have fallen off sharply as well with the Challenger report showing just 55,679 job cuts announced in October. This is the lowest reading for this report since March 2008. In late 2008 and early 2009, jobless cut announcements moved above 200,000 a month. Nonfarm payrolls in October are expected to show a decline of 175,000 after losing 263,000 in September. The unemployment rate is expected to continue its ascent with economists looking for a reading of 9.9 percent.

Productivity in the third quarter rose 9.5 percent, well above estimates for a gain of 6.3 percent. This also follows a 6.9 percent rise in the second quarter. This news bodes well for corporate profits with businesses able to get more bang for the buck. However, it also limits the amount of people hired by corporate America. Nonetheless, this level of productivity growth cannot be sustained and this means we could see hiring activity down the road. Unit labor costs fell 5.2 percent, which was much lower than the decline of 3.9 percent expected. Year on year, productivity is up 4.3 percent in the third quarter, up from 1.9 percent in the second quarter.

The FOMC met Tuesday and Wednesday of this week, resulting in a statement Wednesday afternoon. Many economists felt the committee would use language signifying a rise in rates at a closer date. However, the FOMC left the "extended period" of time language in their statement. There are those that are afraid the Fed is creating a huge inflationary problem, but other feel the risks of inflation are small compared with the risks of a deeper recession if stimulus doesn't continue. Nonetheless, the committee did not that the economy is showing improvement, but that activity is likely to remain weak for a time.

Jody Osborne
Senior Staff Writer & Options Strategist
Optionetics.com ~ Your Options Education Site

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