Monday Morning Outlook

Bulls stampeded down Wall Street last week, induced by strong reports on the jobs market, productivity and factory orders.

The Dow climbed 240.94 points, or 2.3%, to close at 10,566.20, the S&P rose 34.20 points, or 3.1%, ending at 1,138.69, and the NASDAQ gained 88.09 points, or 3.9%, to close at 2,326.35.

On Friday, the Labor Department announced the unemployment rate held steady at 9.7% for February, a better showing than the modest increase to 9.8% economists predicted. During the month, employers cut more than 36K jobs, well short of the 50K that analysts expected. Within the report, the average workweek for employees retreated from 33.9 hours in January to 33.8 hours.

Employers in the private sector reduced their work staff at a slower pace in February compared to the previous month. More than 20K jobs were lost during the month, well below the 60K that was lost in January, according to ADP's forecast. The overall job loss was in-line with analysts’ estimates.

The number of newly filed claims for unemployment benefits for the week ending February 27 fell by 29K to a seasonally adjusted rate of 469K. The reading comes in nearly on target of the 470K economists had projected. Furthermore, the number of those continuing to receive benefits slipped to 4.5M, falling more than what economists anticipated.

In the housing sector, pending home sales plunged in January. The drop is being attributed to an increase in severe weather throughout the country, which dampened sales. The National Association of Realtors revealed that their housing index showed sales plummeting 7.6% from December to January with a reading of 90.4. The current data was the lowest reading since last April. Economists were looking for the index to advance to a reading of 97.6.

The U.S. service sector expanded in February, growing at its fastest pace in more than two years. The ISM reported last week that its index measuring service industries posted a reading of 53, up from a reading of 50.5 in January. Economists had been looking for the index to advance marginally, up to a reading of 51.

Meanwhile, a gauge of current economic activity posted a 2.6% increase to 54.8. Additionally, new orders, which is another important leading indicator of the ISM Service index, advanced by 0.3 points to a reading of 55.

During Q4 of 2009, productivity expanded at a much faster pace than previously projected, helped by a huge decrease in unit labor costs. For the quarter, productivity advanced at an annual rate of 6.9%, well ahead of the 6.2% growth rate expected. As for unit labor costs, it declined at a rate of 5.9%, much larger than the 4.4% drop analysts predicted.

Throughout all of 2009, productivity from nonfarm workers advanced by 3.8%, almost double the 2% increase in 2008. The 6.9% growth rate was the fastest annual increase in productivity since a 4.6% increase in 2002.

With productivity increasing, factory orders followed suit. In January, orders increased by 1.7%, marginally lower than the 1.8% gain economists had expected. The advancement was led by a 118.6% surge in demand for commercial aircraft. Excluding transportation, orders were up a more modest 0.1%.

Orders for durable goods increased 2.6%, slightly lower than the 3% estimate the government made last week. Moreover, orders for nondurable goods increased by 0.9% in January, following a 1.3% gain in December.

In a reading from the Federal Reserve’s Beige Book survey, analysts found that the nation’s economic recovery continues to march forward, albeit at a much slower pace than what was first anticipated. The Fed stated, "Economic conditions continued to expand ... although severe snowstorms in early February held back activity in some places.”

Following a surge in economic growth to end 2009, the first quarter in 2010 lost precious momentum causing economists to lower their prediction of economic growth to around 3% for the January to March period.

Economic data slated for this week includes the Wholesale Inventories, Trade Balance and the Business Inventory reports for January, as well as weekly results for Initial Claims and Crude Inventories. The Treasury Budget and Retail Sales reports for February, along with the Michigan Sentiment report for March are also due out.