Job Growth Slows, Manufacturing Pulls Back after Surge

- The Change in Non-farm Payrolls for May was 75K versus estimates of 170K and 126K in April.
- The Change in Manufacturing Payrolls for May fell 14K versus estimates of 5K and 19K in April.
- The Unemployment Rate for May fell to 4.6% versus estimates of 4.7% and 4.7% in April.
- Average Hourly Earnings for May rose .1% versus estimates of a .3% increase and a .6% gain in April.
- Factory Orders for April fell 1.8% versus estimates of a 2.1% decline and a 4.0% gain in March.

BOTTOM LINE: The US economy added fewer jobs than expected for a second month in May and wage growth slowed, Bloomberg reported. Smaller wage gains increase the probability of a Fed “pause” as unit labor costs make up two-thirds of inflation. The labor force participation rate remained at 66.1% for the fourth consecutive month. I continue to believe the labor market is slowing, but will remain relatively healthy without generating substantial unit labor cost increases.

Orders placed with US factories fell 1.8% in April, led by aircraft and computers, Bloomberg reported. Excluding transportation equipment, orders rose .2%. Orders for capital goods excluding aircraft, a gauge of future business activity, fell 1.7% versus a 3.4% gain the prior month. The inventory-to-shipments ratio rose to 1.17 months, the highest since July 2005. I continue to believe manufacturing is slowing to more average rates.

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Friday Watch

Late-Night Headlines
Bloomberg:
- The US, China, Russia and three European powers have agreed on “far-reaching proposals” in an attempt to persuade Iran to curtail its nuclear program.
- NYSE Group(NYX) agreed to buy Euronext NV for $9.96 billion, forming the first transatlantic stock exchange and edging out a rival bid by Deutsche Boerse AG.
- Japanese shares declined after Nikkei English News said prosecutors in Tokyo are examining whether an investment fund overseen by shareholder activist Yoshiaki Murakami violated Japanese securities law.
- Vonage Holdings(VG) customers who want to back out of last week’s IPO by the Internet phone company may have a legal basis for doing so.
- Copper futures in Shanghai fell for a third day on concern a Chinese government agency may sell as much as 100,000 metric tons of the metal from its stockpiles.
- Crude oil may decline for a second week on signs that rising inventories and higher refinery output will meet gasoline demand during the US summer driving season, a Bloomberg survey showed.

Financial Times:
- GlaxoSmithKline Plc(GSK), Europe’s largest drugmaker, plans to bid over $15 billion for Pfizer’s(PFE) consumer health care unit.

Late Buy/Sell Recommendations
ThinkEquity Partners:
- Rated (AIRN) Buy, target $8.
- Rated (MTLK) Buy, target $9.

Merrill Lynch:
- Raised (AUO) to Buy.

Business Week:
- IPass Inc.(IPAS) shares may climb as shareholders urge the software maker to improve corporate governance, citing Eric Appell, an analyst at Merriman Curhan Ford & Co.
- Forest Labs(FRX), maker of drugs for depression, pain and cardiovascular and respiratory disorders, is poised to grow after declining 8.7% this year, citing Kavita Thomas of First Global Markets.

Night Trading
Asian Indices are -.50% to +.50% on average.
S&P 500 indicated -.16%.
NASDAQ 100 indicated -.12%.

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Earnings of Note
Company/EPS Estimate
- None of note

Upcoming Splits
- (BRY) 2-for-1
- (MFC) 2-for-1
- (SCSC) 2-for-1

Economic Releases
8:30 am EST
- The Change in Non-farm Payrolls for May is estimated at 170K versus 138K in April.
- The Change in Manufacturing Payrolls for May is estimated at 5K versus 19K in April.
- The Unemployment Rate for May is estimated at 4.7% versus 4.7% in April.
- Average Hourly Earnings for May are estimated to rise .3% versus a .5% gain in April.

10:00 am EST
- Factory Orders for April are estimated to fall 2.1% versus a 4.1% gain in March.

BOTTOM LINE: Asian indices are mixed as losses in commodity stocks are being offset by gains in exporters in the region. I expect US equities to open modestly lower and to rise into the afternoon, finishing mixed. The Portfolio is 75% net long heading into the day.

***Alert***

Due to a scheduling conflict I am unable to post the Thursday Close. I will post the Friday Watch later this evening. Sorry for the inconvenience.

Stocks Sharply Higher into Final Hour on Falling Commodity Prices, Declining Inflation Concerns, Bargain Hunting and Short-Covering

BOTTOM LINE: The Portfolio is substantially higher into the final hour on gains in my Internet longs, Semiconductor longs, Retail longs and Networking longs. I covered some of my (IWM), (QQQQ) shorts and added to my (TLT) and various commodity shorts today, thus leaving the Portfolio 75% net long. The tone of the market is positive as the advance/decline line is higher, most sectors are higher and volume heavy. Measures of investor anxiety are mostly lower. Today’s overall market action is very bullish given the mostly weaker economic data and decline in commodity prices. For the month of May, the energy industry saw the greatest amount of net insider selling in the S&P 500. Insiders purchased $65,417,391 worth of stock. They sold $2,229,633,318 worth. This is the largest amount of insider selling in energy this cycle. This is especially significant considering it comes ahead of the hurricane season, and most expect to see another spike higher in energy prices during this time. I expect stocks to maintain gains into the close as declining inflation worries, short-covering, bargain hunting and a reversal lower in oil prices offset weaker economic data.

Today's Headlines

Bloomberg:
- Consumers continued spending in May even as gas prices rose, helping many retailers post sales gains that exceeded analyst estimates.
- Nickel plunged the most in 19 months, and copper’s decline reached the trading limit in NY, reviving speculation that the rally in metals may be over.
- Toyota Motor(TM) and Honda Motor increased US sales by more than 15% in May while their biggest US rivals, GM(GM) and Ford(F), posted their fourth consecutive monthly declines.
- Crude oil fell to session lows, reversing $1.55 from session highs as speculators continued to take profits in most commodities.

Wall Street Journal:
- Goldman Sachs’(GS) board will meet tomorrow to decide whether Lloyd Blankfein, currently No.2 at the world’s largest securities firm, will succeed Henry Paulson as chairman and CEO.
- The US FCC has proposed charges on Internet phone users and some wireless customers to help subsidize telephone services to rural and low-income customers.
- Management-led buyouts in the US have grown in size this year.
- Wal-Mart Stores(WMT) may sell ethanol-based biofuel at company owned gas stations, providing a boost to the market for alternative fuels.
- Goldman Sachs(GS) quit as an adviser to Mirant(MIR) in the US power producer’s $7.86 billion hostile takeover bid for NRG Energy(NRG) that was revealed Tuesday.
- IBM(IBM) and Microsoft(MSFT) are scouring Silicon Valley for start-ups they might work with or acquire.

Washington Post:
- About 170 employees of the Washington Post(WPO) have accepted early retirement offers as the company tries to contain costs at a time when circulation is falling.

LA Times:
- Sony’s(SNE) Connect Internet music store is still losing in its competition with Apple Computer’s(AAPL) iTunes service.